<PAGE>
As filed with the Securities and Exchange Commission on March 31, 1999
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
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)
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COPIES TO:
DAVID R. KING, ESQUIRE
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
(215) 963-5000
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
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED PROPOSED
SECURITIES TO BE AMOUNT TO BE MAXIMUM MAXIMUM AGGREGATE AMOUNT OF
REGISTERED REGISTERED AGGREGATE PRICE PER SHARE OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A common stock, no 1,561,051 shares(1) $3.9375 $6,146,638 $1,709
par value
</TABLE>
(1) Shares of common stock which may be offered pursuant to this
registration statement consist of an estimated 907,990 shares
issuable upon conversion of debentures and an estimated 653,061 shares
issuable upon exercise of warrants. We have registered 1.25
times the number of shares which are currently issuable upon conversion
of debentures and exercise of warrants. This number is our good faith
estimate of the maximum number of shares we may issue upon conversion of
debentures and exercise of 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
convertible debenture and the warrants, as such number may be adjusted
as a result of stock splits, stock dividends and antidilution provisions
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 SmallCap Market on March 26, 1999 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.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, March 31, 1999
1,561,051 SHARES
INFONAUTICS, INC.
CLASS A COMMON STOCK
(No Par Value)
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RGC International Investors is offering for sale all 1,561,051
shares of our common stock under this prospectus. RGC International Investors
may offer these shares from time to time as described in "Selling Shareholder."
We will receive no proceeds from the sale of these shares and are paying all
expenses in connection with this registration statement.
RGC International Investors has not advised us of its plans for the
distribution of common stock covered by this prospectus. We expect that the
common stock may be sold from time to time in negotiated transactions and in
transactions on the Nasdaq SmallCap Market at market prices at the time of sale.
Further, RGC may also sell the common stock as distributed under "Plan of
Distribution." RGC and the brokers and dealers who assist in the sale of its
common stock may be considered an underwriter according to the Securities Act.
Also, their commissions or discounts and other compensation may be considered
underwriters' compensation. See "Plan of Distribution."
The Common Stock is listed on the Nasdaq SmallCap Market under the symbol
"INFO." On March 26, 1999, the last reported sale price of the Class A Common
Stock on the Nasdaq SmallCap Market was $3.94 share.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF SOME ISSUES TO
CONSIDER BEFORE PURCHASING OUR COMMON STOCK.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful of complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is _____________, 1999.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Company .......................................................... 4
Disclosure Regarding Forward-Looking Statements ...................... 4
Incorporation of Certain Documents by Reference ...................... 5
Risk Factors ......................................................... 5
Use of Proceeds ...................................................... 13
Selling Shareholder .................................................. 13
Plan of Distribution ................................................. 14
Legal Opinion ........................................................ 15
Experts .............................................................. 15
Where You Can Find More Information .................................. 16
</TABLE>
THE COMPANY
OVERVIEW
Infonautics is an Internet information company that provides content-rich
research and reference services to schools, libraries, individuals and
businesses. Our subscription-based Electric Library service combines content
from magazines, newspapers, books, wire services, television and radio
transcripts, photo archives and maps. Electric Library is marketed to
educational institutions, such as schools and libraries, and to individuals over
the Internet and through online services.
Company Sleuth is an advertising and sponsorship supported service that is
currently provided free to the user over the Internet. Company Sleuth aggregates
free content from selected World Wide Web ("Web") sites, and provides e-mail
notification of new information posted to these Web sites on specific public
companies. The content on the site is drawn from a variety of sources, and
includes information on new patents, Internet domain name registrations, stock
prices, insider trading activity, Securities and Exchange Commission filings and
news reports.
Our e-commerce online publishing services, formerly referred to as content
management and custom archive services, make use of our technology,
systems-operation and customer-care functions to provide e-commerce archive
services to publishers who wish to make their content available, for a fee, on
the Internet.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains, or has incorporated by
reference, forward-looking statements within the meaning of the federal
securities laws. Forward-looking statements typically are identified by use of
terms such as "may," "will," "expect," "anticipate," "estimate" and similar
words, although some forward-looking statements are expressed differently. You
should be aware that our actual results could differ materially from those
contained in the forward-looking statements due to a number of factors,
including changes in technology and customer demand for our product and
increases in competition. You should also consider carefully the statements
under "Risk Factors" which address additional factors that could cause our
actual results to differ from those set forth in the forward-looking statements.
Given these uncertainties, current or prospective investors are cautioned not to
place undue reliance on any such forward-looking statements. We disclaim any
obligation or intent to update any such factors or forward-looking statement to
reflect future events or developments.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We refer you to the following documents which we filed with the SEC and
incorporate by reference into this prospectus:
(a) Our Annual Report on Form 10-K for the fiscal year ended December
31, 1998.
(b) The description of our company's common stock, no par value, set
forth in our registration statement on Form 8-A filed on April 23, 1996,
including any amendment or report filed for the purpose of updating this
description.
We also incorporate by reference all reports and documents filed by us
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act
while this registration statement is effective. Any statement contained or
incorporated is superseded by any subsequently filed document that constitutes a
part of this prospectus.
Upon request, we will provide to you a copy of any or all documents which
were incorporated into this prospectus by reference. You should direct written
or oral requests for copies to Robert Wright, Manager, Investor Relations,
Infonautics, Inc., 900 West Valley Road, Suite 1000, Wayne, Pennsylvania 19087
(telephone number (610) 971-8840).
RISK FACTORS
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS IN ADDITION TO THE
OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT
ON FORM 10-K.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES
Since our company was founded, we have a history of losses and have had a
negative cash flow. As of December 31, 1998, we experienced cumulative net
losses of about $60.1 million, with net losses of about $13.8 million, $17.4
million and $17.4 million, respectively, for each of the years ended December
31, 1996, December 31, 1997 and December 31, 1998. We can offer no assurance
that our company will ever be profitable.
WE ARE A RELATIVELY NEW COMPANY
We began operating in November 1992 and introduced our first online service
early in 1995. Our online services generated total net revenue of about $1.1
million in 1996, $5.9 million in 1997 and $11.6 million in 1998. This represents
81%, 86% and 78% of our revenues, respectively, in 1996, 1997 and 1998. Our
content management and custom archive services and any licensing of our core
technology generated revenues of $272,000 in 1996, $937,000 in 1997 and $2.6
million in 1998. This represents 19%, 13% and 17% of our revenues, respectively,
in 1996, 1997 and 1998. We must expand distribution and achieve market
penetration for our services in order to achieve revenue growth. Further, we
must continue to upgrade and add technologies to our existing and new services
to achieve revenue growth.
5
<PAGE>
WE OPERATE IN A NEW AND DEVELOPING MARKET
We operate in a new and rapidly evolving market that has an increasing
number of other companies that compete with us either directly or indirectly.
Because the market for our services is new and evolving and because we are a
relatively new company, we do not know the growth rate of these markets, if any.
Therefore, we cannot predict whether we will be able to develop markets for our
services. If we do not develop markets or develop markets slower than expected,
our results may suffer.
WE MAY NEED MORE MONEY
At December 31, 1998, we had $3.3 million in cash and $5.6 million in
working capital deficit. We anticipate that we will have enough money to
continue operating for at least the next 12 months. If we do need more money, we
may be able to obtain it through additional equity financing, debt financing or
other sources, but this may result in significant dilution to existing
shareholders.
Also, we may make strategic decisions that could negatively affect us. In
March 1998, we entered into a multi-year, multi-million dollar marketing
agreement with America Online, Inc. Pursuant to this agreement, we must pay $4
million to AOL for placement fees and the Company has paid $1.2 million of this
amount in 1998. We may not make enough money under this agreement to cover the
associated expenses. In this event, we would have a shortfall which would
negatively affect us.
WE MAY BE UNABLE TO SUSTAIN A TRADING MARKET FOR OUR STOCK
Effective January 5, 1999, our stock is traded on the Nasdaq SmallCap
Market. We must maintain certain standards in the Nasdaq Stock Market listing
requirements to stay listed on the Nasdaq SmallCap Market. We may not be able to
continue to meet these standards. If we do not continue to meet these standards,
our stock may be traded on the over-the-counter market. If our stock is traded
on the over-the-counter market, our shareholders would have less liquidity. In
addition, we would be less visible in the public markets.
WE HAVE COMPETITION
There are many entities, both public and private, including companies with
greater resources and name recognition that are or may become competitors of
ours. Many of these companies have substantially greater experience and larger
existing customer bases than we do. Accordingly, our competitors may succeed in:
- responding more quickly to new or emerging technologies;
- responding more rapidly to changes in customer requirements;
- devoting greater resources to the development, promotion and sale of
their products or services than us; and
- establishing relationships with content providers that have not
entered into agreements with us.
Competitors may succeed in developing services and products which are
superior to ours and also may prove more successful in marketing their
products or services to the same customers we intend to market our products
or services to. Also, our competitors may be more successful in obtaining
agreements with our content providers. Moreover, if our strategic partners'
products fail, it could affect us negatively as our success is partially
dependent on the success of our relationship with our strategic partners.
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<PAGE>
WE ARE DEPENDENT ON THIRD PARTY SITES AND SERVICES
We have entered into agreements with third parties in order to acquire new
subscribers for our Electric Library service. Typically, these agreements
provide our Electric Library service with promotion and placement on the third
parties' web sites. These agreements usually require us to pay the third parties
a fixed fee plus a variable fee based on the number of qualified users who
enroll for our service. In some cases, we pay only a variable fee. Examples of
these agreements include our Interactive Marketing Agreement with America
Online, Inc., our Distinguished Provider Services Agreement with Netscape
Communications Corporation, and our Wired Digital, Inc. agreement (for the
HotBot search engine). Some of our third party agreements have one and two year
terms and may only be terminated early in certain cases. Others may be
terminated on short notice by either us or the third party. One or more of these
agreements may not generate enough revenue to cover the associated costs, and a
significant shortfall could negatively affect us. Additionally, one or more of
these agreements may not be renewed. If they are not renewed, this could reduce
our acquisition rate for new subscribers, which could also negatively affect us.
WE ARE DEPENDENT ON AND MAY BE REQUIRED TO MAKE SIGNIFICANT PAYMENTS TO CONTENT
PROVIDERS
We have relationships with content providers that are fundamental to our
goal of becoming a leading online reference service. To date, we have entered
into supply agreements with various content providers, including publishers, to
provide information for use in our 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:
- breach of any material obligation, if the breach remains uncured
within a specified number of days after written notice; or
- a bankruptcy, insolvency or similar filing, if the filing is not
withdrawn within a specified number of days.
The content providers may unilaterally terminate some of the agreements
under certain circumstances, including our failure 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, we also obtain
representations from our publishers and content providers in these agreements as
to the ownership of licensed content and obtain indemnification to cover any
breach of any of these representations.
Our future success also partially depends on our ability to license
additional content on a cost-effective basis and to maintain our existing
relationships with our content providers, which we may not be able to do. We are
reducing our reliance on content aggregators and concurrently are contracting
directly with publishers. As a result, from time to time, there may be changes
in the number of publications available on our services. Nevertheless, we may on
a case-by-case basis, enter into relationships with third-party content
aggregators to fill our specific needs. In addition, the combination of
contracting directly with publishers and our overall effort to increase the
content available under our Electric Library service will result in an increase
in data preparation costs. We believe that the possible reduction of content or
the increase in data preparation costs will not negatively affect us but we are
not certain.
In addition, while fees payable to our content providers constitute a
significant portion of our cost of revenues, we are not sure that the content
providers will be satisfied with the revenue received through our arrangements.
Nor are we sure that content providers will enter into prospective agreements
with us. If we must increase the fees payable to our content providers, we may
be negatively affected.
7
<PAGE>
WE ARE DEPENDENT ON AND MAY BE REQUIRED TO PAY FOR SOME WEB-BASED CONTENT
We license content from publishers and other sources for our Electric
Library services. We also access and provide links to Web-based content in our
Company Sleuth service (and other Company Sleuth-type services). We access this
content mainly by searching selected Web sites and then providing links to
relevant content from Company Sleuth. Usually, we pay no fee, or a small fee,
for accessing Web-based content in this manner. Our ability to continue to use
Web-based content in this manner for free, or for small fees, is fundamental to
our goal of providing free, or low cost, Internet-based products and services.
If we are not able to continue to access and provide Web-based content like we
have been, we may be negatively affected. For example, if we have to pay fees or
develop technology in order to access and provide Web-based content, our costs
will rise. If we are not able to access and provide Web-based content on
favorable terms, we may be negatively affected in our ability to deliver Company
Sleuth service (and other Company Sleuth-type services).
WE MAY NOT BE ABLE TO RETAIN OUR CUSTOMERS OR MAINTAIN THE PRICE OF OUR SERVICES
Our Electric Library marketing strategy and objectives depend in part on
our ability to retain and renew customers, especially in the educational market,
after their subscription period has ended. In the educational market, renewals
depend on many factors. These include the funding available for educational
customers to license services like Electric Library and the availability of
competitive services. In the end-user market, industry experience indicates that
a significant number of subscribers to our services will likely end their
subscriptions over time, but tend to be replaced by new subscribers. Also, we
may reduce the selling price of our online reference services due to factors
such as increased competition or loss of customers. If our retention and renewal
rates or pricing decreases significantly, our results may suffer.
WE ARE AT RISK FOR SYSTEM OR SERVICE FAILURES OR INADEQUACIES
We have occasionally suffered failures of the computer hardware and
software and telecommunications systems that we use to deliver our services to
customers. These failures have caused interruptions in the services our
customers receive from us. Also, the growth of our customer base, content base
or both may strain the systems we use to deliver our service to customers to the
point where the system may perform poorly or fail. Any such delay or failure to
the systems we use to deliver our services to customers would negatively affect
us. We are also dependent on the ability to maintain our systems in effective
working order and to protect it against damage from:
- fire;
- natural disaster;
- power loss;
- telecommunications failure; or
- similar events.
All of the systems we use to deliver our services to customers (except for
external telecommunications systems) are located at our headquarters facilities
in Wayne, Pennsylvania. Although we maintain property insurance, claims could
exceed the coverage obtained.
We, along with our customers, test and perform quality assurance efforts in
connection with our services. We may, however, find errors in our services or
our service upgrades that could result in:
- loss of or delay in market acceptance and sales;
- diversion of development resources;
- injury to our reputation; or
- increased service and support costs.
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OUR QUARTERLY RESULTS MAY FLUCTUATE
We expect to experience significant fluctuations in future quarterly
operating results that may be caused by:
- demand for our services;
- introduction or enhancement of services and products by us and our
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 educational markets; and
- general economic conditions.
Therefore, we believe that comparing our quarterly results will not
necessarily be informative and is not an indication of future performance.
WE ARE DEPENDENT ON PROPRIETARY TECHNOLOGY
Our success depends on proprietary software technology and software
developed by us and licensed from third parties. We have decreased our
dependence on and have some alternatives to certain third party technology and
software. We may not, however, be able to license similar technology at a
comparable cost.
In order to establish and protect our proprietary rights in our services,
we rely on patents, trademarks, copyrights and trade secrets. We also routinely
enter into confidentiality and non-disclosure agreements with our employees,
consultants, advisors and partners. However, these parties may not honor these
agreements. Further, we may not successfully protect our rights to unpatented
trade secrets, know-how and confidential information. Others may also
independently develop substantially equivalent or even superior proprietary
information and techniques, or otherwise gain access to our trade secrets,
know-how and confidential information. While we believe that our services and
the proprietary rights developed or licensed to us do not infringe on the rights
or others, we cannot be sure that others will not bring an infringement claim
against us or those licensing information to us. Any patents we now hold, or any
patents that may issue from patent applications we file, may not be broad enough
to protect what we believe are our proprietary rights. Also, any current or
future patents may not give us any competitive advantages. The U.S. Patent and
Trademark Office or a private party could institute an interference proceeding
relating to our patents or patent applications. We may incur substantial costs
in asserting any patent rights and in defending suits against us related to
intellectual property rights. We may also incur substantial costs in asserting
our intellectual property rights against others.
Laws of some foreign countries do not protect proprietary rights to as
great an extent as do the laws of the United States. As the nature of online
services and the Internet is global, we cannot control the ultimate destination
or our services. Policing the unauthorized use of our technology and proprietary
rights is often difficult and expensive anywhere in the world.
WE ARE IN AN INDUSTRY THAT IS SUBJECT TO 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.
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The introduction of new technologies and the emergence of new industry
standards and practices can render our existing products and services obsolete
and unmarketable. Additionally, it could require us to make significant
unanticipated investments in research and development. We are dependent, in
part, on our ability to keep pace with:
- the latest technologies and technological development;
- changing customer requirements; and
- frequent new product introductions.
WE ARE DEPENDENT ON OUR PERSONNEL AND MUST EFFECTIVELY MANAGE OUR GROWTH
We are highly dependent on the performance of our executive officers and
key employees. Some of our officers and all of our other employees have not
entered into employment agreements with us. There is intense competition for
qualified personnel. Therefore, we may not be able to attract and retain the
qualified personnel necessary for the development of our business. The loss of
the services of existing personnel, as well as the failure to recruit additional
key technical, managerial and sales personnel in a timely manner, would be
detrimental to our business. Furthermore, we may incur substantial expenses in
connection with hiring and retaining employees.
We must manage our operations effectively while responding to constant
changes in both technology and the markets where we compete if we are to grow in
the future. Our results will suffer if we cannot manage growth effectively.
WE ARE DEPENDENT ON EXCALIBUR TECHNOLOGIES CORPORATION
Excalibur Technologies Corporation licenses to us components of the basic
search software we use. Excalibur may not continue to support or maintain the
software adequately and may terminate the arrangement with us. Our agreement
with Excalibur terminates January 31, 2010. It may be terminated early by either
party upon breach of any material obligation, after a notice period. We believe,
however, that we could find replacement suppliers to provide us with comparable
software within a reasonable time frame if Excalibur became unable to adequately
supply the software to us. If we are unable to find replacement suppliers that
could offer us comparable software on similar terms, our business will be
negatively affected.
WE ARE DEPENDENT ON THE INTERNET
Our success depends, in part, on the continued expansion of the Internet
and its network infrastructure. The Internet may not continue to expand as
quickly as needed to continue to be a viable commercial marketplace because
of factors that may inhibit its ability to handle increased levels of
activity, such as:
- inadequate development of the necessary infrastructure (i.e., a
reliable network backbone);
- delayed development of complementary products and technologies (i.e.,
high speed modems and security procedures for financial transactions);
and
- delays in the development or adoption of new standards and protocols
(i.e., the next-generation Internet protocol).
Our business will suffer if the Internet does not expand as quickly as
needed to continue be a viable commercial marketplace. Moreover, our business
may be negatively affected by critical issues concerning online services and the
Internet, including:
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- security;
- cost;
- ease of use and access;
- property ownership; and
- other legal liability issues.
WE MAY BE SUBJECT TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
We are not subject to direct regulation by any U.S. government agency other
than the laws and regulations applicable to businesses generally. Also, there
are few laws or regulations directly applicable to access to or commerce on the
Internet. We believe such laws and regulation do not seriously affect our
operations and that we are in compliance currently with such laws. Governments
may adopt laws or regulation in the future 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, provisions of the Communications Decency Act of 1996 may apply
to us. Although portions of the Communications Decency Act were struck down as
unconstitutional by the U.S. Supreme Court, other portions of it remain in
effect. We do not know the manner in which the remaining portions of the
Communications Decency Act will be enforced or its effect on our operation. It
is possible that the Communications Decency Act (or a successor to it) will
expose us to substantial liability. This Act or other laws and regulations
enacted within the United States or outside could decrease the growth of
commercial online services and Internet content and activity. This could
decrease the demand for our services while increasing our cost of doing
business.
Although transmission of our services primarily originates in Pennsylvania,
the Web is global in nature. Therefore, governments of other states and foreign
countries might try to regulate our transmissions or prosecute us for violations
of their laws. We may incur substantial costs in responding to charges of
violations of local laws by state or foreign governments. Moreover, existing
United States and foreign laws and regulations could expose us to substantial
liability in areas such as:
- intellectual property ownership;
- defamation;
- personal privacy;
- obscenity; and
- export restrictions.
In such case, our content providers, other licensors or insurance may not
indemnify us. For example, governmental entities or private parties may sue us
for:
- copyright or trademark infringement;
- defamation;
- negligence; or
- theories based on the nature and content of the materials we made
available.
Although we maintain general liability insurance, claims could exceed the
coverage obtained or could not be covered by our insurance. In addition, we
obtain representations from our publishers and content providers as to the
ownership of licensed informational content and obtain indemnification to cover
any breach of these representations. We still may not receive accurate
representations or adequate compensation for any
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breach of such representations. We will be negatively affected by claims which
are not covered by indemnification.
WE MAY INCUR COSTS RELATED TO THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. To date, we experienced very few problems related to Year
2000 testing and those requiring immediate modification have been fixed in our
day-to-day operating environment. We do not believe that we have material
exposure to the Year 2000 issue with respect to our information systems since
our existing systems correctly define the Year 2000.
We are currently conducting an analysis to determine the extent to which
others have Year 2000 issues. These include our major suppliers' systems
(insofar as they relate to our business), including the systems of credit card
processors, telecommunications providers, and we are currently unable to predict
the extent to which the Year 2000 issue will affect our suppliers, or the extent
to which we would be vulnerable to our suppliers' failure to remediate any Year
2000 issues on a timely basis. We would be negatively affected by the failure of
a major supplier subject to the Year 2000 issue to convert its systems on a
timely basis or a conversion that is incompatible with our systems. In addition,
most of our customers pay with credit cards, and our operations may be
materially adversely affected to the extent our customers are unable to use
their credit cards due to Year 2000 issues that are not rectified by their
credit card providers.
WE MAY NOT BE ABLE TO LOCALIZE OR MARKET OUR SERVICES FOR THE INTERNATIONAL
MARKET
We are seeking to license our services internationally in order to increase
our growth and markets. Our success in the international market may depend, in
part, on our ability to create localized versions of our services and market
them internationally. We may not be able to localize or market our services
internationally in all cases and the costs for doing so may be significant. Our
revenues from international activities may not be enough to cover our costs for
doing business internationally and we may face new and existing competitors
internationally.
We do not have significant experience in localizing and marketing our
services internationally. We are also subject to many difficulties inherent in
doing business internationally, such as:
- compliance with regulatory requirements;
- export restrictions;
- export controls relating to technology, tariffs and other trade
barriers;
- protection of intellectual property rights;
- difficulties in staffing and managing international operations;
- longer payment cycles;
- problems in collecting accounts receivable;
- political instability;
- fluctuations in currency exchange rates; or
- potentially adverse tax consequences.
Any or all of these factors could cause our results to suffer.
OUR STOCK PRICE MAY VARY SIGNIFICANTLY
The price of our stock has varied significantly at times and may continue
to do so. There may be several factors contributing to this behavior, including:
12
<PAGE>
- quarterly results of operations;
- announcements of new technologies or new services by us or our
competitors;
- changes in financial estimates and recommendations by securities
analysts;
- the operating and stock price performance of other companies that
investors may view as comparable to us; and
- news relating to trends in our markets.
The stock market in general, and the market for Internet-related companies
in particular, have experienced extreme volatility. This volatility often has
been unrelated to the operating performance of these companies. These broad
market and industry fluctuations may cause the price of our stock to drop,
regardless of our performance.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common stock by RGC
International. We are registering these shares of common stock held by RGC
International to fulfill our contractual obligations to RGC International. Some
of the shares of common stock are issuable in the future on the exercise of
outstanding warrants. We will receive the exercise price paid by RGC
International on the exercise of the outstanding warrants.
SELLING SHAREHOLDER
The following table sets forth certain information with respect to the
common stock beneficially owned by RGC International Investors as of the date of
this prospectus. To our knowledge, RGC International has sole voting and
investment power over the shares of common stock listed in the table below. RGC
International, to our knowledge, has not had a material relationship with us
during the last three years, other than as an owner of our common stock or other
securities.
RGC International provided to us the information included in the table
below. As RGC International can offer all, some or none of its shares of common
stock, no definitive estimate as to the number of shares RGC will hold after
this offering. Therefore, we have prepared the table below on the assumption
that all shares offered under this prospectus will be sold by RGC International.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
of Common Stock of Common Stock
Prior to the Offering After Offering(3)
---------------------- -----------------------------
Number of Shares to
Number be Sold Under this Number Percent of
Name of Shares Prospectus of Shares Class
- ---- --------- ---------- --------- -----
<S> <C> <C> <C> <C>
RGC International 1,561,051(2) 1,561,051(2) 0 0
Investors(1)
- ---------------
</TABLE>
(1) RGC is a party to an investment management agreement with Rose Glen
Capital Management, L.P., a limited partnership of which the general
partner is RGC General Partner Corp. Messrs. Wayne Bloch, Gary Kaminsky
and Steven Katznelson own all of the outstanding capital stock of RGC
General Partner Corp. and are parties to a shareholders agreement
pursuant to which they collectively control RGC General Partner Corp.
Through RGC General Partner Corp., these individuals control Rose Glen
Capital Management, L.P. These individuals disclaim beneficial ownership
of Infonautics' common stock owned by RGC.
(2) Consists of an estimated 907,990 shares issuable upon conversion of
debentures and an estimated 653,061 shares issuable upon exercise of
warrants. We have registered 1.25 times the number of shares which are
currently issuable upon conversion of debentures and exercise of
warrants. This number is our good faith estimate of the maximum number
of shares we may issue upon conversion of debentures and exercise of
warrants. The debentures and warrants contain provisions which limit the
numer of shares of common stock into which the debentures are convertible
and the warrants are exercisable. Under these provisions, the number of
shares of common stock into which the debentures are convertible and the
warrants are exercisable on any given date (together with any additional
shares of common stock held by RGC) will not exceed 4.99% of our then
outstanding common stock.
(3) We have assumed the sale of all of the common stock offered under this
prospectus will be sold.
13
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of common stock to fulfill our obligations
under an agreement with RGC International Investors. The registration of the
shares of common stock does not necessarily mean that any of the shares will be
offered or sold by RGC International Investors under this prospectus.
RGC International Investors and its pledgees, donees, transferees or
other successors in interest may offer its shares at various times in one or
more of the following transactions:
- - a block trade in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- - purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this prospectus;
- - ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
- - face-to-face transactions between RGC International Investors and
purchasers without a broker-dealer.
In effecting sales, brokers or dealers engaged by RGC International
Investors may arrange for other brokers or dealers to participate. These
brokers or dealers may receive commissions or discounts from RGC
International Investors in amounts to be negotiated immediately prior to the
sale. These brokers or dealers and any other participating brokers or dealers
may be deemed to be "underwriters" within the meaning of the Securities Act
in connection with such sales. In addition, any securities covered by this
prospectus may also be sold under Rule 144 rather than pursuant to this
prospectus. RGC has the sole discretion not to accept any offer to purchase
shares or make any sale of shares if it concludes the purchase price is
inadequate.
RGC International, alternatively, may sell the shares offered under this
prospectus through our underwriter. RGC International has not entered into any
agreement with a prospectus underwriter. We can not guarantee that this type of
agreement will not be entered into. If RGC International entered into this type
of agreement, we will supplement or revise this prospectus.
Upon being notified by RGC International 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, we will file a supplemented prospectus, if
required, pursuant to Rule 424(c) under the Securities Act, disclosing:
- the name of each broker or dealer;
- the number of shares involved;
- the price at which the shares were sold;
- the commissions paid or discounts or concessions allowed to the
broker(s) or dealer(s), where applicable;
- that the broker(s) or dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus, as supplemented; and
- other facts material to the transaction.
14
<PAGE>
RGC International and any other persons participating in the sale or
distribution of the shares of common stock will be subject to the relevant
provisions of the Exchange Act. These provisions may limit the timing of
purchases and sales of any of the shares by RGC or any other person.
We will indemnify RGC International, or its transferees or assignees,
against some liabilities, including liabilities under the Securities Act, or to
contribute to payments RGC International or its respective pledgees, donees,
transferees or other successors in interest, may be required to make in respect
thereof.
We are bearing all costs relating to the registration of the shares (other
than fees and expenses, if any), of counsel or other advisers to RGC
International. RGC International will pay any commissions, discounts or other
fees payable to broker-dealers in connection with any sale of the shares.
LEGAL OPINION
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania will opine as to
the legality of the common stock offered under this prospectus.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1998 and the
consolidated statements of operations, changes in shareholders' equity
(deficit), cash flows and financial statements shall be for each of the three
years ended December 31, 1998, all included in the Infonautics, Inc. Annual
Report on Form 10-K for the fiscal year ended December 31, 1998, have been
incorporated by reference herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
15
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the Securities and Exchange
Commission (the "SEC"). You can read and copy these reports, proxy statements
and other information at the public reference facilities maintained by the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549; Midwest
Regional office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and Northeast Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048. You can obtain copies of such material at the
prescribed rates from the Public Reference Section of the SEC at its principal
office in Washington, D.C. You can obtain information about the SEC's Public
Reference Room at 1-800-SEC-0330. In addition, we file this material
electronically with the SEC, and the SEC maintains a website
(http://www.sec.gov) that contains reports, proxy statements and other
information regarding companies (including us) that file electronically with the
SEC. Our common stock is listed on the Nasdaq SmallCap Market and our reports,
proxy statements and other information can also be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
We have filed with the SEC a registration statement on Form S-3, with
respect to our common stock. For further information with respect to us and the
shares, we refer you to that registration statement and its exhibits. Statements
made in this prospectus regarding the contents of any contract or other
documents are not necessarily complete. You should read the actual documents
which are exhibits to the registration statement in their entirety.
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS PROSPECTUS. WE ARE NOT OFFERING SHARES
OF OUR COMMON STOCK IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS MAY NOT BE CORRECT AT ANY TIME AFTER
ITS DATE.
---------------
1,561,051 Shares
INFONAUTICS, INC.
CLASS A
COMMON STOCK
(NO PAR VALUE)
---------------
PROSPECTUS
---------------
________, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
<S> <C>
Securities and Exchange Commission Registration fee .... $ 1,709
Accounting service ..................................... $ 5,000
Legal fees ............................................. $40,000
Miscellaneous, including NASDAQ listing fee ............ $20,000
Total .............................................. $66,709
</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 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.
18
<PAGE>
The Company's Bylaws also authorize 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.
19
<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> <C>
4.1 Convertible Debenture issued February 11, 1999 to RGC
International Investors, LDC*
4.2 Stock Purchase Warrant issued February 11, 1999 to RGC
International Investors, LDC*
5 Opinion of Morgan, Lewis & Bockius LLP*
10.1 Securities Purchase Agreement, dated as of February 11,
1999, by and among Infonautics, Inc. and RGC International
Investors, LDC (Filed as Exhibit 99.1 to the Company's
Current Report on Form 8-K dated February 24, 1999 and
incorporated herewith)
10.2 Registration Rights Agreement, dated as of February 11,
1999, by and among Infonautics, Inc. and RGC International
Investors, LDC (Filed as Exhibit 99.2 to the Company's
Current Report on Form 8-K dated February 24, 1999 and
incorporated herewith)
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>
* Filed herewith
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 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.
20
<PAGE>
(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.
21
<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 31st day of
March, 1999.
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/S/DAVID VAN RIPER MORRIS Principal Executive Officer and Director March 31, 1999
- ----------------------------
David Van Riper Morris
/S/FEDERICA F. O'BRIEN Principal Financial and Accounting Officer March 31, 1999
- --------------------------------
Federica F. O'Brien
/S/ISRAEL J. MELMAN Director March 31, 1999
- --------------------------------
Israel J. Melman
/S/HOWARD L. MORGAN Director March 31, 1999
- --------------------------------
Howard L. Morgan
/S/LLOYD N. MORRISETT Director March 31, 1999
- --------------------------------
Lloyd N. Morrisett
/S/BARRY RUBENSTEIN Director March 31, 1999
- --------------------------------
Barry Rubenstein
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES Title Date
- ---------- ----- ----
<S> <C> <C>
/S/BRIAN SEGAL
Brian Segal Director March 31, 1999
/S/MARVIN I. WEINBERGER Director March 31, 1999
Marvin I. Weinberger
/S/LESTER WUNDERMAN Director March 31,1999
Lester Wunderman
</TABLE>
23
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document
------ --------
<S> <C> <C>
4.1 Convertible Debenture issued February 11, 1999 to RGC
International Investors, LDC*
4.2 Stock Purchase Warrant issued February 11, 1999 to RGC
International Investors, LDC*
5 Opinion of Morgan, Lewis & Bockius LLP*
10.1 Securities Purchase Agreement, dated as of February 11,
1999, by and among Infonautics, Inc. and RGC International
Investors, LDC (Filed as Exhibit 99.1 to the Company's
Current Report on Form 8-K dated February 24, 1999 and
incorporated herewith)
10.2 Registration Rights Agreement, dated as of February 11,
1999, by and among Infonautics, Inc. and RGC International
Investors, LDC (Filed as Exhibit 99.2 to the Company's
Current Report on Form 8-K dated February 24, 1999 and
incorporated herewith)
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>
* Filed herewith
<PAGE>
Exhibit 4.1
EXHIBIT A TO SECURITIES PURCHASE AGREEMENT
THE SECURITIES REPRESENTED HEREBY OR ISSUABLE UPON
CONVERSION HEREOF, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES BEING SOLD, TRANSFERRED OR ASSIGNED UNDER SAID
ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE BORROWER THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SAID ACT.
THE UNPAID AND UNCONVERTED PRINCIPAL AMOUNT OF THIS
DEBENTURE REPRESENTED BY THIS DEBENTURE MAY BE LESS THAN THE
AMOUNT STATED ON THE FACE HEREOF. SEE SECTION 1.4(B).
CONVERTIBLE DEBENTURE
February 11, 1999 $3,000,000
FOR VALUE RECEIVED, INFONAUTICS, INC., a Pennsylvania corporation
(hereinafter called the "BORROWER"), hereby promises to pay to the order of RGC
INTERNATIONAL INVESTORS, LDC or registered assigns (the "HOLDER") the sum of
Three Million Dollars ($3,000,000), on August 11, 2000 (the "MATURITY DATE"),
and to pay interest on the unpaid principal balance hereof at the rate of seven
percent (7%) per annum from February 11, 1999 (the "ISSUE DATE") until the same
becomes due and payable, whether at maturity or upon acceleration or otherwise.
Any amount of principal or interest on this Debenture which is not paid when due
shall bear interest at the rate of fifteen percent (15%) per annum from the due
date thereof until the same is paid ("DEFAULT INTEREST"). Interest shall
commence accruing on the Issue Date, shall be computed on the basis of a 365-day
year and the actual number of days elapsed and shall be payable at the time of
optional conversion of the principal to which such interest relates in
accordance with Article I below or, to the extent not converted, at maturity or
upon acceleration in accordance with the terms hereof. All payments due
hereunder (to the extent not converted into Class A Common Stock, no par value
per share, of the Borrower (the "COMMON STOCK") in accordance with the terms
hereof) shall be made in lawful money of the United States of America. All
payments shall be made at such address as the Holder shall hereafter give to the
Borrower by written notice made in accordance with the provisions of this
Debenture. Whenever any amount expressed to be due by the
<PAGE>
terms of this Debenture is due on any day which is not a business day, the same
shall instead be due on the next succeeding day which is a business day. Except
as otherwise expressly provided herein, this Debenture may not be prepaid by the
Borrower. As used in this Debenture, the term "business day" shall mean any day
other than a Saturday, Sunday or a day on which commercial banks in the city of
New York, New York are authorized or required by law or executive order to
remain closed. Each capitalized term used herein, and not otherwise defined,
shall have the meaning ascribed thereto in that certain Securities Purchase
Agreement, dated February 11, 1999, pursuant to which this Debenture was
originally issued (the "PURCHASE AGREEMENT"). For purposes hereof, the term
"Debentures" shall be deemed to refer to this Debenture, all other convertible
debentures issued pursuant to the Purchase Agreement and all convertible
debentures issued in replacement hereof or thereof or otherwise with respect
hereto or thereto.
The following terms shall apply to this Debenture:
ARTICLE I. CONVERSION RIGHTS
1.1 CONVERSION RIGHT.
(a) CONVERSION AMOUNT. Subject to the conversion limitations set forth
herein and in Section 1.1(b) below and Section 1.6 below, the Holder shall have
the right from time to time, and at any time on or prior to the earlier of (i)
the Maturity Date and (ii) the date of payment of the Default Amount (as defined
in Article III) pursuant to Section 1.5(a) or Article III or any payments
pursuant to Section 1.6, each in respect of the remaining outstanding principal
amount of this Debenture, to convert all or any part of the outstanding and
unpaid principal amount of this Debenture into fully paid and non-assessable
shares of Common Stock, as such Common Stock exists on the Issue Date, or any
shares of capital stock or other securities of the Borrower into which such
Common Stock shall hereafter be changed or reclassified, at the Conversion Price
(as defined in Section 1.2 below) determined as provided herein (a
"CONVERSION"); PROVIDED, HOWEVER, that in no event shall the Holder be entitled
to convert any portion of this Debenture in excess of that portion of this
Debenture upon conversion of which the sum of (1) 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
unconverted portion of the Debentures, the unexercised Warrants or the
unexercised or unconverted portion of any other security of the Borrower subject
to a limitation on conversion or exercise analogous to the limitations contained
herein) and (2) the number of shares of Common Stock issuable upon the
conversion of the portion of this Debenture with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the proviso to 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 Regulations 13 D-G
thereunder, except as otherwise provided in clause (1) of such proviso. The
number of shares of Common Stock to be issued upon each conversion of this
Debenture shall be determined by dividing the Conversion Amount (as defined
below) by the applicable Conversion Price. The term "CONVERSION AMOUNT" means,
with respect to any conversion of this Debenture, the sum of (1) the principal
amount of this
- 2 -
<PAGE>
Debenture to be converted in such conversion, PLUS (2) all accrued and unpaid
interest thereon for the period beginning on the Issue Date and ending on the
Conversion Date (as defined in Section 1.4 thereof), PLUS (3) Default Interest,
if any, on the amounts referred to in the immediately preceding clauses (1)
and/or (2), PLUS (4) at the Holder's option, any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(e) hereof or pursuant to Section 2(b) of that
certain Registration Rights Agreement, dated as of February 11, 1999, executed
in connection with the initial issuance of this Debenture and the other
Debentures issued on the Issue Date (the "REGISTRATION RIGHTS AGREEMENT").
(b) CONVERSION RESTRICTIONS. Subject to the exceptions set forth below, the
Holder may only convert this Debenture on or after the ninetieth (90th) day
following the Issue Date; PROVIDED, HOWEVER, that the restrictions on conversion
set forth in this Section 1.1(b) shall not be applicable to conversions taking
place on any Conversion Date (i) occurring on or after the date the Borrower
makes a public announcement that it intends to merge or consolidate with any
other corporation or sell or transfer all or substantially all of the assets of
the Borrower or (ii) occurring on or after the date any person, group or entity
(including the Borrower) publicly announces a tender offer to purchase 50% or
more of the Borrower's Common Stock (or any other takeover scheme) or (iii)
occurring after there is a material adverse change in the business, operations,
assets, financial condition or prospects of the Borrower or its subsidiaries,
taken as a whole, or (iv) following the occurrence of any Event of Default (as
defined below).
1.2 CONVERSION PRICE. Subject to the provisions of Section 1.5 below, the
Conversion Price shall be $4.13 (90% of the Closing Bid Price (as defined below)
on the trading day prior to the Issue Date) (subject to equitable adjustments
for stock splits, stock dividends or rights offerings by the Borrower relating
to the Borrower's securities or the securities of any subsidiary of the
Borrower, combinations, recapitalization, reclassifications, extraordinary
distributions and similar events). "CLOSING BID PRICE" means, for any security
as of any date, the last closing bid price on the Nasdaq SmallCap Market
("NASDAQ") as reported by Bloomberg Financial Markets or an equivalent, reliable
reporting service mutually acceptable to and hereafter designated by holders of
a majority in interest of the Debentures and the Borrower ("BLOOMBERG") or, if
Nasdaq is not the principal trading market for such security, the closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the closing bid price of such security is available in
the over-the-counter market on the electronic bulletin board for such security,
as reported by Bloomberg, or, if no closing bid price of such security is
available in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is reported
for such security, then the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security that are listed in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date in the manner provided above, the Closing Bid Price shall be the fair
market value as mutually determined by the Borrower and the holders of a
majority in interest of the Debentures being converted for which the calculation
of the Closing Bid Price is required in order to determine the Conversion Price
of such Debentures. "TRADING DAY" shall mean any day on which the
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Common Sock is traded for any period on Nasdaq, or on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.
1.3 RESERVATION OF SHARES. The Borrower covenants that during the period
the conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares, free from preemptive
rights, to provide for the issuance of Common Stock upon the full conversion of
this Debenture and the other Debentures issued pursuant to the Purchase
Agreement. As of the date of issuance of this Debenture, 907,990 authorized and
unissued shares of Common Stock have been duly reserved for issuance upon
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement (the "RESERVED AMOUNT"). The Reserved Amount shall be
increased from time to time in accordance with the Borrower's obligations
pursuant to Section 4(h) of the Purchase Agreement. The Borrower represents that
upon issuance, such shares will be duly and validly issued, fully paid and
non-assessable. In addition, if the Borrower shall issue any securities or make
any change to its capital structure which would change the number of shares of
Common Stock into which the Debentures shall be convertible at the then current
Conversion Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Debentures. The Borrower (i) acknowledges that it has irrevocably
instructed its transfer agent to issue certificates for the Common Stock
issuable upon conversion of this Debenture and (ii) agrees that its issuance of
this Debenture shall constitute full authority to its officers and agents who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock in accordance with the
terms and conditions of this Debenture.
If, at any time a Holder of this Debenture submits a Notice of Conversion,
and the Borrower does not have sufficient authorized but unissued shares of
Common Stock available to effect such conversion in accordance with the
provisions of this Article I (a "CONVERSION DEFAULT"), subject to Section 4.8,
the Borrower shall issue to the Holder all of the shares of Common Stock which
are then available to effect such conversion. The portion of this Debenture
which the Holder included in its Conversion Notice and which exceeds the amount
which is then convertible into available shares of Common Stock (the "EXCESS
AMOUNT") shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof until (and
at the Holder's option at any time after) the date additional shares of Common
Stock are authorized and duly reserved for issuance by the Borrower to permit
such conversion. The Borrower shall pay to the Holder payments ("CONVERSION
DEFAULT PAYMENTS") for a Conversion Default in the amount of (x) the SUM OF (1)
the then outstanding principal amount of this Debenture, PLUS (2) all accrued
and unpaid interest thereon through the Authorization Date (as defined below),
PLUS (3) Default Interest, if any, on the amounts referred to in clauses (1)
and/or (2), MULTIPLIED BY (y) .24, MULTIPLIED BY (z) (N/365), where N = the
number of days from the day the Holder submits a Notice of Conversion giving
rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date (the
"AUTHORIZATION DATE") that the Borrower authorizes a sufficient number of shares
of Common Stock to effect conversion of the full outstanding principal balance
of this Debenture. The Borrower shall use its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable following the
earlier of (i) such time that the Holder notifies the Borrower or that
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the Borrower otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof and
(ii) a Conversion Default. The Borrower shall send notice to the Holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of the Holder's accrued Conversion Default Payments. The accrued
Conversion Default Payments for each calendar month shall be paid in cash or
shall be convertible into Common Stock (at such time as there are sufficient
authorized shares of Common Stock) at the applicable Conversion Price, at the
Holder's option, as follows:
(a) In the event the Holder elects to take such payment in cash, cash
payment shall be made to the Holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event the Holder elects to take such payment in Common Stock,
the Holder may convert such payment amount into Common Stock at the Conversion
Price (as in effect at the time of conversion) at any time after the fifth day
of the month following the month in which it has accrued in accordance with the
terms of this Article I (so long as there is then a sufficient number of
authorized shares of Common Stock).
The Holder's election shall be made in writing to the Borrower at any time
prior to 9:00 p.m., New York City Time, on the third day of the month following
the month in which Conversion Default payments have accrued. If no election is
made, the Holder shall be deemed to have elected to receive cash. Nothing herein
shall limit the Holder's right to pursue actual damages (to the extent in excess
of the Conversion Default Payments) for the Borrower's failure to maintain a
sufficient number of authorized shares of Common Stock, and each Holder shall
have the right to pursue all remedies available at law or in equity (including
decree of specific performance and/or injunctive relief).
1.4 METHOD OF CONVERSION.
(a) MECHANICS OF CONVERSION. Subject to Section 1.1 and the other
provisions of this Debenture, this Debenture may be converted by the Holder in
whole or in part (provided such partial conversion is at least $50,000, or such
lesser amount as shall remain unpaid at the time of the conversion (together
with accrued and unpaid interest thereon)) at any time and from time to time
after the Issue Date, by (A) submitting to the Borrower a duly executed notice
of conversion in the form attached hereto as Exhibit A ("NOTICE OF CONVERSION")
by facsimile dispatched prior to Midnight, New York City time (the "CONVERSION
NOTICE DEADLINE") on the date specified therein on the Conversion Date (as
defined below) (or by other means resulting in, or reasonably expected to result
in, written notice to the Borrower on the date specified therein as the
Conversion Date) to the office of the Borrower; which notice shall specify the
principal amount of this Debenture to be converted, the applicable Conversion
Price, and the number of shares of Common Stock issuable upon such conversion;
and (B) subject to Section 1.4(b), surrendering this Debenture at the principal
office of the Borrower.
(b) SURRENDER OF DEBENTURE UPON CONVERSION. Notwithstanding anything to the
contrary set forth herein, upon conversion of this Debenture in accordance with
the
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terms hereof, the Holder shall not be required to physically surrender this
Debenture to the Borrower unless the entire unpaid principal amount of this
Debenture is so converted. The Holder and the Borrower shall maintain records
showing the principal amount so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder and the
Borrower, so as not to require physical surrender of this Debenture upon each
such conversion. In the event of any dispute or discrepancy, such records of the
Borrower shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion of this Debenture is
converted as aforesaid, the Holder may not transfer this Debenture unless the
Holder first physically surrenders this Debenture to the Borrower, whereupon the
Borrower will forthwith issue and deliver upon the order of the Holder a new
Debenture of like tenor, registered as the Holder (upon payment by the Holder of
any applicable transfer taxes) may request, representing in the aggregate the
remaining unpaid principal amount of this Debenture. The Holder and any
assignee, by acceptance of this Debenture, acknowledge and agree that, by reason
of the provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture
represented by this Debenture may be less than the amount stated on the face
hereof.
(c) PAYMENT OF TAXES. The Borrower shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock or other securities or property on conversion
of this Debenture in a name other than that of the Holder (or in street name),
and the Borrower shall not be required to issue or deliver any such shares or
other securities or property unless and until the person or persons (other than
the Holder or the custodian in whose street name such shares are to be held for
the Holder's account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
(d) LOST OR STOLEN DEBENTURES. Upon receipt by the Borrower of evidence of
the loss, theft, destruction or mutilation of this Debenture, and (in the case
of loss, theft or destruction) of indemnity reasonably satisfactory to the
Borrower, and upon surrender and cancellation of this Debenture, if mutilated,
the Borrower shall execute and deliver a new Debenture of like tenor and date.
(e) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon submission of a notice
of Conversion, the Borrower shall, within three business days after the
Conversion Date (the "DELIVERY PERIOD"), issue and deliver (or cause its
Transfer Agent so to issue and deliver) in accordance with the terms hereof and
the Purchase Agreement (including, without limitation, in accordance with the
requirements of Section 2(g) of the Purchase Agreement) to or upon the order of
the Holder that number of shares of Common Stock for the portion of this
Debenture converted as shall be determined in accordance herewith. In addition
to any other remedies available to the Holder, including actual damages and/or
equitable relief, the Borrower shall pay to the Holder $2,000 per day in cash
for each day beyond a two-day grace period following the Delivery Period that
the Borrower fails to deliver Common Stock (a "DELIVERY DEFAULT") issuable upon
conversion of this Debenture pursuant to the Notice of Conversion until such
time as the Borrower has delivered all such Common Stock (the "DELIVERY DEFAULT
PAYMENTS"); PROVIDED, HOWEVER, in the event of a failure by the Borrower to
deliver shares upon conversion as a result of a Conversion Default, the
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Holder shall not be entitled to receive Delivery Default Payments but shall be
entitled to receive Conversion Default Payments in accordance with Section 1.3.
Such Delivery Default Payments shall be paid to the Holder of the fifth day of
the month following the month in which they have accrued or, at the option of
the Holder (by written notice to the Borrower by the first day of the month
following the month in which they have accrued), shall be added to the principal
amount of this Debenture, in which event interest shall accrue thereon in
accordance with the terms of this Debenture and such additional principal amount
shall be convertible into Common Stock in accordance with the terms of this
Debenture.
In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Borrower's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon written request of the Holder and its compliance
with the provisions contained in Section 1.1 and in this Section 1.4, the
Borrower shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the Holder
by crediting the account of the Holder's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery and penalties described in the immediately preceding paragraph shall
apply to the electronic transmittals described herein.
(f) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK. Upon receipt by the
Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder
of record of the Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on this Debenture
shall be reduced to reflect such conversion, and, unless the Borrower defaults
on its obligations hereunder, all rights with respect to the portion of this
Debenture being so converted shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets, as herein
provided, on such conversion. If the Holder shall have given a Notice of
Conversion as provided herein, the Borrower's obligation to issue and deliver
the certificates for Common Stock shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to enforce the same, any
waiver or consent with respect to any provision thereof, the recovery of any
judgment against any person or any action to enforce the same, any failure or
delay in the enforcement of any other obligation of the Borrower to the holder
of record, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Borrower,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion.
(g) NO FRACTIONAL SHARES. If any conversion of this Debenture would result
in a fractional share of Common Stock or the right to acquire a fractional share
of Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion of this Debenture shall be the
next higher number of shares.
(h) CONVERSION DATE. The "CONVERSION DATE" shall be the date specified in
the Notice of Conversion, provided that the Notice of Conversion is submitted by
facsimile (or by other means resulting in, or reasonably expected to result in,
written notice) to the Borrower or
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its Transfer Agent before Midnight, New York City time, on the date so
specified, otherwise the Conversion Date shall be the first business day after
the date so specified (provided that the Notice of Conversion is actually
received by the Borrower or its Transfer Agent on such business day). The person
or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such securities as of the Conversion Date and all rights with respect to this
Debenture (or portion thereof) surrendered shall forthwith terminate except the
rights set forth in Section 1.4(f) and Section 1.7.
1.5 EFFECT OF CERTAIN EVENTS.
(a) EFFECT OF MERGER, CONSOLIDATION, ETC. At the option of the Holder, the
sale, conveyance or disposition of all or substantially all of the assets of the
Borrower, the effectuation by the Borrower of a transaction or series of related
transactions in which more than 50% of the voting power of the Borrower is
disposed of, or the consolidation, merger or other business combination of the
Borrower with or into any other Person (as defined below) or Persons when the
Borrower is not the survivor shall either: (i) be deemed to be an Event of
Default (as defined in Article III) pursuant to which the Borrower shall be
required to pay to the Holder upon the consummation of and as a condition to
such transaction an amount equal to the Default Amount (as defined in Article
III) or (ii) be treated pursuant to Section 1.5(b) hereof. "PERSON" shall mean
any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time when this
Debenture is issued and outstanding and prior to conversion of all of the
Debentures, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower, then the Holder of this
Debenture shall thereafter have the right to receive upon conversion of this
Debenture, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore issuable upon
conversion, such stock, securities or assets which the Holder would have been
entitled to receive in such transaction had this Debenture been converted in
full immediately prior to such transaction (without regard to any limitations on
conversion set forth herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the Holder of this Debenture
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the conversion hereof. The Borrower shall not effect any transaction described
in this Section 1.5(b) unless (a) it first gives, to the extent practicable,
thirty (30) days prior written notice (but in any event at least fifteen (15)
days prior written notice) of the record date of the special meeting of
shareholders to approve, or if there is no such record date, the consummation
of, such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Debenture) and (b) the resulting
successor or acquiring entity (if not the Borrower) assumes by written
instrument the obligations of
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this Section 1.5(b). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(c) ADJUSTMENT DUE TO DISTRIBUTION. If the Borrower shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the Borrower's shareholders
in cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a "DISTRIBUTION"), then the Holder of this Debenture shall
be entitled, upon any conversion of this Debenture after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the Holder with respect to the
shares of Common Stock issuable upon such conversion had such Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
(d) PURCHASE RIGHTS. If, at any time when any Debentures are issued and
outstanding, the Borrower issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the "PURCHASE RIGHTS")
pro rata to the record holders of any class of Common Stock, then the Holder of
this Debenture will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable
upon complete conversion of this Debenture (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
(e) ANTIDILUTION PROVISIONS. The Conversion Price shall be subject to
adjustment from time to time as provided in this Section 1.5(e).
(i) ADJUSTMENT OF CONVERSION PRICE. If and whenever on or after the date of
issuance of this Debenture, the Borrower issues or sells, or in accordance with
Section1.5(e)(ii) hereof is deemed to have issued or sold, any shares of Common
Stock for no consideration or for a consideration per share (before deduction of
reasonable expenses or commissions or underwriting discounts or allowances in
connection therewith) less than the Market Price (as defined below) on the date
of issuance (or deemed issuance) of such shares of Common Stock (a "DILUTIVE
ISSUANCE"), then immediately upon the Dilutive Issuance, the Conversion Price
will be reduced to a price determined by multiplying the Conversion Price in
effect immediately prior to the Dilutive Issuance by a fraction, (i) the
numerator of which is an amount equal to the sum of (x) the number of shares of
Common Stock actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Section 1.5(e)(ii) hereof, received by the Borrower upon such Dilutive Issuance
divided by the Market Price in effect immediately prior to the Dilutive
Issuance, and (ii) the denominator of which is the total number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance.
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(ii) EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Price under Section 1.5(e)(i) hereof, the
following will be applicable:
A. ISSUANCE OF RIGHTS OR OPTIONS. If the Borrower in any manner issues or
grants any warrants, rights or options, whether or not immediately exercisable,
to subscribe for or to purchase Common Stock or other securities convertible
into or exchangeable for Common Stock ("CONVERTIBLE SECURITIES") (such warrants,
rights and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as "OPTIONS") and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the Market
Price on the date of issuance or grant of such Options, then the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
will, as of the date of the issuance or grant of such Options, be deemed to be
outstanding and to have been issued and sold by the Borrower for such price per
share. For purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Options" is determined by
dividing (i) the total amount, if any, received or receivable by the Borrower as
consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Borrower
upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Conversion
Price will be made upon the actual issuance of such Common Stock upon the
exercise of such Options or upon the conversion or exchange of Convertible
Securities issuable upon exercise of such Options.
B. ISSUANCE OF CONVERTIBLE SECURITIES. If the Borrower in any manner issues
or sells any Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of Options), and the
price per share for which Common Stock is issuable upon such conversion or
exchange is less than the Market Price on the date of issuance of the
Convertible Securities, then the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities
will, as of the date of the issuance of such Convertible Securities, be deemed
to be outstanding and to have been issued and sold by the Borrower for such
price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Borrower as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Borrower upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Conversion Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
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C. CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a change at any
time in (i) the amount of additional consideration payable to the Borrower upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Borrower upon the conversion or exchange of any Convertible
Securities; or (iii) the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (other than under or by reason
of provisions designed to protect against dilution), the Conversion Price in
effect at the time of such change will be readjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
D. TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE SECURITIES. If,
in any case, the total number of shares of Common Stock issuable upon exercise
of any Option or upon conversion or exchange of any Convertible Securities is
not, in fact, issued and the rights to exercise such Option or to convert or
exchange such Convertible Securities shall have expired or terminated, the
Conversion Price then in effect will be readjusted to the Conversion Price which
would have been in effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination (other than in respect of the actual number of
shares of Common Stock issued upon exercise or conversion thereof), never been
issued.
E. CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Options or
Convertible Securities are issued, granted or sold for cash, the consideration
received therefor for purposes of this Debenture will be the amount received by
the Borrower therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred by the
Borrower in connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
part or all of which shall be other than cash, the amount of the consideration
other than cash received by the Borrower will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Borrower will be the Market
Price thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any acquisition, merger or
consolidation in which the Borrower is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving corporation as is attributable
to such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
in good faith by the Board of Directors of the Borrower.
F. EXCEPTIONS TO ADJUSTMENT OF CONVERSION PRICE. No adjustment to the
Conversion Price will be made (i) upon the exercise of any warrants, options or
convertible securities granted, issued and outstanding on the date of issuance
of this Debenture; (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee benefit plan of the
Borrower now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the independent
members of
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the Board of Directors of the Borrower or a majority of the members of a
committee of independent directors established for such purpose; or (iii) upon
the conversion of the Debentures.
(iii) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Borrower 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 Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Borrower 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 Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(iv) CERTAIN DEFINITIONS.
A. "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of shares of
Common Stock actually outstanding (not including shares of Common Stock held in
the treasury of the Borrower), plus (x) pursuant to Section 1.5(e)(ii)(A)
hereof, the maximum total number of shares of Common Stock issuable upon the
exercise of Options, as of the date of such issuance or grant of such Options,
if any, and (y) pursuant to Section 1.5(e)(ii)(B) hereof, the maximum total
number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
B. "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 SmallCap
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 Borrower or, at the option of a majority-in-interest of the
holders of the outstanding Debentures 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.
C. "COMMON STOCK," for purposes of this Section 1.5(e), includes the Class
A Common Stock, no par value per share, and any additional class of stock of the
Borrower having no preference as to dividends or distributions on liquidation,
provided that the shares purchasable pursuant to this Debenture shall include
only shares of Class A Common Stock, no par value per share, in respect of which
this Debenture is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or any reorganization, reclassification,
consolidation or merger involving the Borrower.
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(f) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section 1.5, the Borrower, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to the Holder of a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Borrower
shall, upon the written request at any time of the Holder, furnish to such
Holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Debenture.
1.6 TRADING MARKET LIMITATIONS. Unless (i) permitted by the applicable
rules and regulations of the principal securities market on which the Common
Stock is then listed or traded or (ii) the Borrower has obtained approval of the
issuance of Common Stock upon conversion of the Debentures in accordance with
applicable law and the rules and regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Borrower or any of its securities (the "SHAREHOLDER APPROVAL") , in no event
shall the total number of shares of Common Stock issued upon conversion of this
Debenture and the other Debentures issued pursuant to the Purchase Agreement
(including any shares of capital stock or rights to acquire shares of capital
stock issued by the Borrower which are aggregated or integrated with the Common
Stock issued or issuable upon conversion of the Debentures for purposes of any
such rule or regulation) exceed the maximum number of shares of Common Stock
that the Borrower can issue pursuant to any rule of the principal United States
securities market on which the Common Stock is then traded (including Rule
4460(i) of Nasdaq) (the "MAXIMUM SHARE AMOUNT"), which, as of the Issue Date
shall be 2,323,376 shares (19.99% of the total shares outstanding on the Issue
Date), subject to adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events relating to
the Common Stock occurring after the Issue Date. With respect to each Holder of
Debentures, the Maximum Share Amount shall refer to such Holder's PRO RATA share
thereof determined in accordance with Section 4.8 below. In the event that (x)
the aggregate number of shares of Common Stock issued upon conversion of this
Debenture and the other Debentures issued pursuant to the Purchase Agreement
represents at least twenty percent (20%) of the Maximum Share Amount and (y) the
sum of (i) the aggregate number of shares of Common Stock issued upon conversion
of this Debenture and the other Debentures issued pursuant to the Purchase
Agreement PLUS (ii) the aggregate number of shares of Common Stock that remain
issuable upon conversion of this Debenture and the other Debentures issued
pursuant to the Purchase Agreement, represents at least one hundred percent
(100%) of the Maximum Share Amount (the "TRIGGERING EVENT"), the Borrower will
use its best efforts to seek and obtain Shareholder Approval (or obtain such
other relief as will allow conversions hereunder in excess of the Maximum Share
Amount) as soon as practicable following the Triggering Event. If any Debentures
cease to be convertible as a result of the limitations described in this Section
1.6 (a "TRADING MARKET REDEMPTION EVENT"), and the Borrower has not prior to, or
within thirty (30) days of the date that such Trading Market Redemption Event
arises, (i) obtained the Shareholder Approval or (ii) eliminated any prohibition
under application law or the rules or regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Borrower or any of its securities on the Borrower's
ability to issue shares of Common Stock in excess of the Maximum Share Amount
then the Borrower shall be obligated to redeem immediately all of the then
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outstanding Debentures, in accordance with this Section 1.6. An irrevocable
redemption notice (the "TRADING MARKET REDEMPTION NOTICE") shall be delivered
promptly to the Holders of Debentures at their registered address appearing on
the records of the Borrower and shall state (i) that the Maximum Share Amount
has been issued upon conversion of the Debentures, (ii) that the Borrower is
obligated to redeem all of the outstanding Debentures, and (iii) the date of
redemption, which shall be a date within five (5) business days of the earlier
of (a) the date of the Trading Market Redemption Notice or (b) the date on which
the Holders of the Debentures notify the Borrower of the occurrence of a Trading
Market Redemption Event. On the date of redemption, the Borrower shall make
payment of the Default Amount (as defined in Article III) in cash.
1.7 STATUS AS SHAREHOLDER. Upon submission of a Notice of Conversion by a
Holder, (i) the shares covered thereby (other than the shares, if any, which
cannot be issued because their issuance would exceed such Holder's allocated
portion of the Reserved Amount or Maximum Share Amount) shall be deemed
converted into shares of Common Stock and (ii) the Holder's rights as a Holder
of such converted portion of this Debenture shall cease and terminate, excepting
only the right to receive certificates for such shares of Common Stock and to
any remedies provided herein or otherwise available at law or in equity to such
Holder because of a failure by the Borrower to comply with the terms of this
Debenture. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Debenture for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Borrower) the Holder shall regain the rights of a Holder of this Debenture with
respect to such unconverted portions of this Debenture and the Borrower shall,
as soon as practicable, return such unconverted Debenture to the Holder or, if
the Debenture has not been surrendered, adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without limitation, the right
to receive Conversion Default Payments pursuant to Section 1.3 to the extent
required thereby for such Conversion Default and any subsequent Conversion
Default) for the Borrower's failure to convert this Debenture.
ARTICLE II. CERTAIN COVENANTS
2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not without the Holder's
written consent (a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock or (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock.
2.2 RESTRICTION ON STOCK REPURCHASES. So long as the Borrower shall have
any obligation under this Debenture, the Borrower shall not without the Holder's
written consent redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any one transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.
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<PAGE>
2.3 BORROWINGS. So long as the Borrower shall have any obligation under
this Debenture, the Borrower shall not without the Holder's written consent,
create, incur, assume or suffer to exist any liability for borrowed money,
except (a) borrowings in existence or committed on the date hereof and of which
the Borrower has informed the Holder in writing prior to the date hereof, (b)
indebtedness incurred in the ordinary course of business (which shall include
trade credit, equipment financing, accounts receivables financing and lines of
credit (not to exceed $5 million)) or (c) borrowings, the proceeds of which
shall be used to repay this Debenture.
2.4 ADVANCES AND LOANS. So long as the Borrower shall have any obligation
under this Debenture, the Borrower shall not without the Holder's written
consent, lend money, give credit or make advances to any person, firm, joint
venture or corporation, including, without limitation, officers, directors,
employees, subsidiaries and affiliates of the Borrower, except loans, credits or
advances (a) in existence or committed on the date hereof and which the Borrower
has informed the Holder in writing prior to the date hereof or (b) made in the
ordinary course of business.
2.5 CONTINGENT LIABILITIES. So long as the Borrower shall have any
obligation under this Debenture, the Corporation shall not without the Holder's
written consent, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumption, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed the Holder in writing prior to the date
hereof or (b) made in the ordinary course of business.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "EVENT OF DEFAULT")
shall occur:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay the
principal hereof or interest thereon when due on this Debenture, whether at
maturity, upon mandatory prepayment pursuant to Section 1.7, upon acceleration
or otherwise.
3.2 CONVERSION AND THE SHARES. The Borrower fails to issue shares of Common
Stock to the Holder (or announces or threatens that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Debenture (for a period of at least
sixty (60) days, if such failure is solely as a result of the circumstances
governed by Section 1.3 and the Borrower is using its best efforts to authorize
a sufficient number of shares of Common Stock as soon as practicable), fails to
transfer or cause its transfer agent to transfer (electronically or in
certificated form) any certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when required by this Debenture
or the Registration Rights Agreement, or fails to remove any restrictive legend
(or to withdraw any stop transfer instructions in respect thereof) on any
certificate for any shares of Common Stock issued to the Holder upon conversion
of this Debenture as and when required by this
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<PAGE>
Debenture, the Purchase Agreement or the Registration Rights Agreement (or makes
any announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for ten (10) days after the Borrower shall
have been notified thereof in writing by the Holder.
3.3 FAILURE TO EFFECT REGISTRATION. The Borrower fails to obtain
effectiveness with the Securities and Exchange Commission prior to July 11, 1999
of the Registration Statement(s) (as defined in the Registration Rights
Agreement) required to be filed pursuant to Section 2(a) of the Registration
Rights Agreement, or fails to obtain the effectiveness of any additional
Registration Statement (required to be filed pursuant to Section 3(b) of the
Registration Rights Agreement) within 120 days after the Registration Trigger
Date (as defined in the Registration Rights Agreement), or any such Registration
Statement, after its initial effectiveness and during the Registration Period
(as defined in the Registration Rights Agreement), lapses in effect or sales of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) cannot otherwise be made thereunder (whether by reason of the
Borrower's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement , the Borrower's failure to
file and obtain effectiveness with the SEC of an additional Registration
Statement required pursuant to Section 3(b) of the Registration Rights Agreement
or otherwise) for more than thirty (30) consecutive days or sixty (60) days in
any twelve month period after such Registration Statement becomes effective;
3.4 BREACH OF COVENANTS. The Borrower breaches any material covenant or
other material term or condition contained in Article II hereof or in Sections
1.3, 1.5 or 1.6 of this Debenture, or Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5
of the Purchase Agreement and such breach continues for a period of ten (10)
business days after written notice thereof to the Borrower from the Holder;
3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has a material adverse effect on the rights of the
Holder with respect to this Debenture, the Purchase Agreement or the
Registration Rights Agreement;
3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business, or such a receiver or trustee shall otherwise be
appointed;
3.7 JUDGMENTS. Any money judgment, writ or similar process shall be entered
or filed by a court against the Borrower or any subsidiary of the Borrower or
any of its property or other assets for more than $200,000, and shall remain
unvacated, unbonded or unstayed for a period
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<PAGE>
of twenty (20) days unless otherwise consented to by the Holder, which consent
will not be unreasonably withheld;
3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower and such proceedings remain outstanding for a period
of sixty (60) days; or
3.9 DELISTING OF COMMON STOCK. The Borrower shall fail to maintain the
listing of the Common Stock on at least one of The Nasdaq National Market,
Nasdaq Small Cap Market, the New York Stock Exchange, or the American Stock
Exchange;
3.10 DEFAULT UNDER OTHER DEBENTURES. An Event of Default has occurred and
is continuing under any of the other Debentures issued pursuant to the Purchase
Agreement.
then, upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of the Holders of a majority of the aggregate principal amount of the
outstanding Debentures issued pursuant to the Purchase Agreement exercisable
through the delivery of written notice to the Borrower by such Holders (the
"DEFAULT NOTICE"), and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become immediately due and payable and
the Borrower shall pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the greater of (i) 120% TIMES the SUM of (w) the
then outstanding principal amount of this Debenture, PLUS (x) all accrued and
unpaid interest thereon for the period beginning on the Issue Date and ending on
the date of payment of the Default Amount (the "MANDATORY PREPAYMENT DATE"),
PLUS (y) Default Interest, if any, on the amounts referred to in clauses (w)
and/or (x), PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(e) hereof or pursuant to Section 2(b) of the Registration Rights Agreement
(the then outstanding principal amount of this Debenture to the date of payment
PLUS the amounts referred to in clauses (x), (y) and (z) shall collectively be
known as the "DEFAULT SUM"), or (ii) the "parity value" of the Default Sum to be
prepaid, where parity value means (a) the highest number of shares of Common
Stock issuable upon conversion of such Default Sum in accordance with Article I
(without giving any effect to any limitation on conversion of the Debenture
contained herein,) MULTIPLIED BY (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first occurrence of the Event
of Default and ending one day prior to the Mandatory Prepayment Date (the
greater of such amounts being referred to herein as the "DEFAULT AMOUNT"). The
Default Amount, together with all other amounts payable hereunder, shall
immediately become due and payable, all without demand, presentment or notice,
all of which hereby are expressly waived, together with all costs, including,
without limitation, legal fees and expenses, of collection, and the Holder shall
be entitled to exercise all other rights and remedies available at law or in
equity.
If the Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then the Holder
shall have the right at any time, so long as the Borrower remains in default
(and so long and to the extent that there are sufficient authorized shares), to
require the Borrower, upon written notice, to immediately issue, in lieu of the
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Default Amount, the number of shares of Common Stock of the Borrower equal to
the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
4.2 NOTICES. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or sent by
United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be 900 West
Valley Road, Suite 1000, Wayne, Pennsylvania 19087, facsimile number
610-293-3910. Both the Holder and the Borrower may change the address for
service by service of written notice to the other as herein provided.
4.3 AMENDMENTS. This Debenture and any provision hereof may only be amended
by an instrument in writing signed by the Borrower and the Holder. The term
"Debenture" and all reference thereto, as used throughout this instrument, shall
mean this instrument (and the other Debentures issued pursuant to the Purchase
Agreement) as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
4.4 ASSIGNABILITY. This Debenture shall be binding upon the Borrower and
its successors and assigns, and shall inure to be the benefit of the Holder and
its successors and assigns.
4.5 COST OF COLLECTION. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6 GOVERNING LAW. This Debenture shall be governed by the internal laws of
the Commonwealth of Pennsylvania, without regard to the principles of conflict
of laws.
4.7 CERTAIN AMOUNTS. Whenever pursuant to this Debenture the Borrower is
required to pay an amount in excess of the outstanding principal amount (or the
portion thereof required to be paid at that time) plus accrued and unpaid
interest plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of cash payment on
this Debenture may be difficult to determine and the amount to be so paid by the
Borrower represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert this
Debenture and to earn a return from the sale of shares of Common Stock acquired
upon conversion of this Debenture at a price in excess of the
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price paid for such shares pursuant to this Debenture. The Borrower and the
Holder hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Debenture into shares of Common
Stock.
4.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The Maximum
Share Amount and Reserved Amount shall be allocated pro rata among the holders
of Debentures based on the principal amount of such Debentures issued to each
Holder. Each increase to the Maximum Share Amount and Reserved Amount shall be
allocated pro rata among the holders of Debentures based on the principal amount
of such Debentures held by each Holder at the time of the increase in the
Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or
otherwise transfer any of such Holder's Debentures, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any
Debentures shall be allocated to the remaining Holders of Debentures, pro rata
based on the principal amount of such Debentures then held by such Holders.
4.9 DAMAGES SHARES. The shares of Common Stock that may be issuable to the
Holder pursuant to Sections 1.3 and 1.4(e) hereof and pursuant to Section 2(b)
of the Registration Rights Agreement ("DAMAGES SHARES") shall be treated as
Common Stock issuable upon conversion of this Debenture for all purposes hereof
and shall be subject to all of the limitations and afforded all of the rights of
the other shares of Common Stock issuable hereunder, including without
limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("DAMAGES AMOUNTS")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.
4.10 DENOMINATIONS. At the request of the Holder, upon surrender of this
Debenture, the Borrower shall promptly issue new Debentures in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $100,000 as the Holder shall request.
4.11 PURCHASE AGREEMENT. By its acceptance of this Debenture, each Holder
agrees to be bound by the applicable terms of the Purchase Agreement.
4.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided below, the
Holder of this Debenture shall have no rights as a Holder of Common Stock unless
and only to the extent that it converts this Debenture into Common Stock. The
Borrower shall provide the Holder with prior notification of any meeting of the
Borrower's shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Borrower of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
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<PAGE>
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20)
days prior to the record date specified therein (or thirty (30) days prior to
the consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent
known at such time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
4.12.
4.13. REMEDIES. The Borrower acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Borrower acknowledges that the remedy at law for a breach of its obligations
under this Debenture will be inadequate and agrees, in the event of a breach or
threatened breach by the Borrower of the provisions of this Debenture, that the
Holder shall be entitled, in addition to all other available remedies at law or
in equity, to an injunction or injunctions restraining, preventing or curing any
breach of this Debenture and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and without any bond or
other security being required.
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in its
name by its duly authorized officer this 11th day of February, 1999.
INFONAUTICS, INC.
By: /S/ David Van Riper Morris
-------------------------------------
David Van Riper Morris
President and Chief Executive Officer
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EXHIBIT A
NOTICE OF CONVERSION
OF CONVERTIBLE DEBENTURE
TO: INFONAUTICS, INC.
(1) Pursuant to the terms of the attached Convertible Debenture (the
"DEBENTURE"), the undersigned hereby elects to convert $ __________ principal
amount of the Debenture into shares of Common Stock of Infonautics, Inc. a
Pennsylvania corporation (the "BORROWER"). Capitalized terms used herein and not
otherwise defined herein have the respective meanings provided in the Debenture.
(2) The Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
TRANSFER").
Name of DTC Prime Broker:
-------------------------------------------
Account Number:
-----------------------------------------------------
/ / In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:
----------------------------------------------------------------
Address:
-------------------------------------------------------------
(3) The Holder acknowledges and affirms that the Common Stock issued
pursuant to this Notice of Conversion has been or will be sold in accordance
with the requirements of the 1933 Act, if applicable, or pursuant to an
exemption under the 1933 Act.
Date:
---------------------------- -------------------------------------
Signature of Registered Holder (must
be signed exactly as name appears in
the Debenture).
<PAGE>
Exhibit 4.2
EXHIBIT B 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 FEBRUARY 11, 1999,
NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, OFFERED
FOR SALE, ASSIGNED, OR OTHERWISE 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 522,449 Shares of Common Stock, no par value per share
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, Five Hundred Twenty-Two
Thousand, Four Hundred Forty-Nine (522,449) fully paid and nonassessable shares
of the Company's Class A Common Stock, no par value per share (the "Common
Stock"), at an exercise price of $5.97 per share(the "Exercise Price"). The term
"Warrant Shares," as used herein, refers to the shares of Common Stock issuable
upon exercise of, or otherwise pursuant to, this Warrant. 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 February 11, 1999, by and
among the Company and the Buyers listed on the execution page thereof (the
"Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and conditions:
<PAGE>
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 the unexercised or unconverted portion of any other
securities of the Company (including the Debentures (as defined in the
Securities Purchase Agreement)) subject to a limitation on conversion or
exercise analogous to the limitation contained herein) 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 4.99% 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) of the preceding sentence.
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").
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<PAGE>
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
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<PAGE>
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.
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) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE OF
COMMON STOCK. Except as otherwise provided in Paragraphs 4(c) and 4(e)
hereof, if and whenever on or after the date of issuance of this
Warrant, the Company issues or sells, or in accordance with Paragraph
4(b) hereof is deemed to have issued or sold, any shares of Common
Stock for no consideration or for a consideration per share (before
deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Market
Price (as hereinafter defined) on the date of issuance (or deemed
issuance) of such shares of Common Stock (a "Dilutive Issuance"), then
immediately upon the Dilutive Issuance, the Exercise Price will be
reduced to a price determined by multiplying the Exercise Price in
effect immediately prior to the Dilutive Issuance by a fraction, (i)
the numerator of which is an amount equal to the sum of (x) the number
of shares of Common Stock actually outstanding immediately prior to
the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the
Market Price in effect immediately prior to the Dilutive Issuance, and
(ii) the denominator of which is the total number of shares of Common
Stock Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof,
the following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any manner
issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common
Stock or other securities convertible into or exchangeable for
Common Stock
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<PAGE>
("Convertible Securities") (such warrants, rights and options to
purchase Common Stock or Convertible Securities are hereinafter
referred to as "Options") and the price per share for which
Common Stock is issuable upon the exercise of such Options is
less than the Market Price on the date of issuance or grant of
such Options, then the maximum total number of shares of Common
Stock issuable upon the exercise of all such Options will, as of
the date of the issuance or grant of such Options, be deemed to
be outstanding and to have been issued and sold by the Company
for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the
exercise of such Options" is determined by dividing (i) the total
amount, if any, received or receivable by the Company as
consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise of all such
Options, plus, in the case of Convertible Securities issuable
upon the exercise of such Options, the minimum aggregate amount
of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of
all such Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon exercise of such
Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner
issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable
upon the exercise of Options), and the price per share for which
Common Stock is issuable upon such conversion or exchange is less
than the Market Price on the date of issuance of the Convertible
Securities, then the maximum total number of shares of Common
Stock issuable upon the conversion or exchange of all
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<PAGE>
such Convertible Securities will, as of the date of the issuance
of such Convertible Securities, be deemed to be outstanding and
to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or
exchange" is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof at
the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise
Price will be made upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there is a change
at any time in (i) the amount of additional consideration payable
to the Company upon the exercise of any Options; (ii) the amount
of additional consideration, if any, payable to the Company upon
the conversion or exchange of any Convertible Securities; or
(iii) the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have
been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon conversion or
exchange of any Convertible Securities is not, in fact,
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<PAGE>
issued and the rights to exercise such Option or to convert or
exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual
number of shares of Common Stock issued upon exercise or
conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this
Warrant will be the amount received by the Company therefor,
before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant
or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of
which shall be other than cash, the amount of the consideration
other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible
Securities are issued in connection with any acquisition, merger
or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed
to be the fair value of such portion of the net assets and
business of the non-surviving corporation as is attributable to
such Common Stock, Options or Convertible Securities, as the case
may be. The fair value of any consideration other than cash or
securities will be determined in good faith by the Board of
Directors of the Company.
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<PAGE>
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No adjustment to the
Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and
outstanding on the date of issuance of this Warrant; (ii) upon
the grant or exercise of any stock or options which may hereafter
be granted or exercised under any employee benefit plan of the
Company now existing or to be implemented in the future, so long
as the issuance of such stock or options is approved by a
majority of the independent members of the Board of Directors of
the Company or a majority of the members of a committee of
independent directors established for such purpose; or (iii) upon
the exercise of the Warrants.
(c) 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.
(d) 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.
(e) 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,
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<PAGE>
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.
(f) 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 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.
(g) 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.
(h) 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
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<PAGE>
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.
(i) 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.
(j) 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 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
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<PAGE>
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.
(k) 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.
(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of
shares of Common Stock actually outstanding (not including
shares of Common Stock held in the treasury of the Company),
plus (x) pursuant to Paragraph 4(b)(i) hereof, the maximum
total number of shares of Common Stock issuable upon the
exercise of Options, as of the date of such issuance or
grant of such Options, if any, and (y) pursuant to Paragraph
4(b)(ii) hereof, the maximum total number of shares of
Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
(ii) "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 SmallCap 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
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<PAGE>
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.
(iii) "COMMON STOCK," for purposes of this Paragraph 4, includes
the Class A Common Stock, no par value per share, and any
additional class of stock of the Company having no
preference as to dividends or distributions on liquidation,
provided that the shares purchasable pursuant to this
Warrant shall include only shares of Common Stock, no par
value per share, in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or
sale of the character referred to in Paragraph 4(e) hereof,
the stock or other securities or property provided for in
such Paragraph.
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
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.
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<PAGE>
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 February 11, 1999, 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
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<PAGE>
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.
(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 exer cise, 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 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 per-
<PAGE>
sonally 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.
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,
-15-
<PAGE>
and the denominator of which shall be the then current Market
Price per share of Common Stock.
(d) REMEDIES. The Company acknowledges that a breach by it of its
obligation hereunder will cause irreparable harm to the holder
hereof, by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that
the remedy at law for a breach of its obligations under this
Warrant will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions hereunder,
that the holder shall be entitled, in addition to all other
available remedies at law or in equity, to an injunction or
injunctions restraining, preventing or curing any breach of this
Warrant and to enforce specifically the terms and provisions
hereof, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 16 -
<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 February 11, 1999
-17 -
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________ __, 1999
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 below,
to:
<TABLE>
<CAPTION>
NAME OF ASSIGNEE ADDRESS NO OF SHARES
- ---------------- --------- ------------
<S> <C> <C>
</TABLE>
, 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: , 1999
-------- --
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
March 31, 1999
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 1,561,051 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; and (d) 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 are validly
issued, fully paid and nonassessable.
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
We consent to the incorporation by reference in this registration statement
on Form S-3 of our report dated February 12, 1999, on our audits of the
consolidated financial statements and financial statement schedule of
Infonautics, Inc. and its subsidiaries as of December 31, 1997 and December
31, 1998, and for each of the three years in the period ended December 31,
1998, which report is included in the Annual Report on Form 10-K. We also
consent to the reference to our firm under the caption "Experts."
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 31, 1999
