U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _________ to __________
Commission file number: 1-14076
VIZACOM INC.
(Name of small business issuer in its charter)
Delaware 22-3270045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Glenpointe Centre East,
300 Frank W. Burr Boulevard - 7th Floor
Teaneck, New Jersey 07666
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (201) 928-1001
Securities registered under Section 12(b) of the Exchange Act: Common stock,
par value $.001
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No __
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's net revenues for its most recent fiscal year: $19,891,357
The aggregate market value of the voting stock held by non-affiliates of
the registrant was $61,616,465, at March 31, 2000, based on the last bid price
of the Common Stock on such date of $6 - 1/8 per share, as reported by The
Nasdaq Stock Market, Inc.
As of March 31, 2000, there were a total of 11,882,539 shares of the Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
Throughout this Annual Report on Form 10-KSB, the terms "we," "us," "our"
and "our company" refers to Vizacom Inc. and, unless the context indicates
otherwise, our subsidiaries, Serif Inc., Serif (Europe) Limited, Software
Publishing Corporation, Renaissance Multimedia, Inc., PWR Systems, Inc.,
Junction 15 Limited, VisualCities.com Inc. and other subsidiaries on a
consolidated basis.
INTRODUCTORY COMMENT - FORWARD-LOOKING STATEMENTS.
Statements contained in this Annual Report on Form 10-KSB include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Forward-looking statements involve
known and unknown risks, uncertainties and other factors which could cause our
actual results, performance and achievements, whether expressed or implied by
such forward-looking statements, not to occur or be realized. Such
forward-looking statements generally are based upon the Company's best estimates
of future results, performance or achievement, based upon current conditions and
the most recent results of operations. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "believe," "estimate," "anticipate," "continue" or similar terms,
variations of those terms or the negative of those terms. Potential risks and
uncertainties include, among other things, such factors as:
- the market acceptance and amount of sales of our products and
services,
- the success of our expansion into Internet and other
e-commerce solutions offerings, such as web site design, web-enabled
customer service and systems integration,
- our success in integrating the operations of acquired
companies, including Renaissance Multimedia, Junction 15 and PWR
Systems, into a coordinated and complimentary operation,
- the extent that we are able to generate e-commerce revenues from,
build membership in and implement technological enhancements to
our VisualCities.com Internet commerce network,
- our ability to retain an active user base, attract new users
and maintain customer satisfaction for our software products, as well
as our VisualCities.com and other web sites,
- the extent that our direct marketing operations achieve
satisfactory response rates,
- our ability to obtain sufficient supplies of marketable products,
- the competitive environment within the industries in which we operate,
- our ability to raise additional capital,
- the extent to which we are successful in developing, acquiring
or licensing products which are accepted by the market,
- consumer confidence in the security of transactions on our web sites,
- our ability to attract and retain qualified personnel,
- business and consumer trends,
- the cost-effectiveness of our product development activities, and
- the other factors and information disclosed and discussed under
"Risk Factors" below and in other sections of this Annual Report on
Form 10-KSB.
Investors should carefully consider such risks, uncertainties and other
information, disclosures and discussions which contain cautionary statements
identifying important factors that could cause actual results to differ
materially from those provided in the forward-looking statements. We undertake
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
We provide business-to-business and business-to-consumer e-commerce
solutions to businesses seeking to improve their operations through the use of
Internet-based technologies. We also develop and market visual communication
software products and resell third-party computer software, hardware and
ancillary products.
Our e-commerce solutions are intended to aid our clients in improving
business efficiencies, enhancing customer relationships and marketing, or
branding, their businesses, products and services. We combine our
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industry-specific knowledge and local implementation abilities in providing
e-commerce solutions to United States- and European-based companies. Our
e-commerce solutions clients primarily consist small and mid-sized companies and
divisions and local offices of large, multi-national corporations. Our
e-commerce solutions include the following services:
- web site development, including web site graphic design, e-business
consulting, marketing and implementation,
- systems integration services, including Internet, intranet and
extranet development, web site-to- legacy systems integration,
computer network design and implementation, and acting as an
authorized value-added-reseller of computer and other digital
communication equipment, and
- e-commerce call center services, including multi-national,
multi-lingual web-enabled call-center sales, customer and
technical-support services, and related direct marketing,
telemarketing and product fulfillment services.
We gained our competencies in web site development and systems integration
through our recent acquisitions of Renaissance Multimedia, Junction 15 and PWR
Systems. We provide additional information on these acquisitions in the "Recent
Acquisitions, Financings and Other Events" subsection commencing below and
elsewhere throughout this Annual Report on Form 10-KSB.
We gained our competencies in customer service, telemarketing, direct
marketing and product fulfillment services through our historical business of
developing and marketing our own and third-party computer products. We currently
operate three telemarketing call centers in Nashua, New Hampshire, Nottingham,
England, and Aachen, Germany. We have web-enabled each of these three centers
using an Internet protocol-based multimedia contact center technology that we
licensed from a third-party. As such, our call centers are capable of providing
real-time chat, audio and video communication services between our call-center
representatives, acting on behalf of our clients, and our clients' customers
under current bandwidth capabilities. Our call centers are operated on a 24
hours per day, seven days per week, 365 days per year, commonly referred to as
on a 24/7/365, basis.
We continue to develop and market visual communications products. We
currently offer twenty-eight software products, which we developed, that operate
on Windows-based operating systems for personal and networked computers. Our
current flagship software products include Serif PagePlus 6, Harvard Graphics
98, HarvardGraphics Easy Presentations, Serif DrawPlus 4 and Serif PhotoPlus 6.
We also offer a number of hardware products, primarily digital cameras,
manufactured by third parties, and sell software products packaged together with
hardware products.
Through our Serif Inc. and Serif (Europe) Limited subsidiaries, two
companies we acquired in May 1996, we have over ten years of experience in
software development and international direct marketing and tele- marketing. We
believe the Serif brand is highly regarded and well-known throughout the United
Kingdom for its line of visual communication graphic software products. Through
our Software Publishing Corporation subsidiary, which we acquired in December
1996, we own the Harvard Graphics brand and product line. We believe the Harvard
Graphics brand is internationally recognized as a pioneer in computer software
applications, and is respected internationally for its presentation graphics
software products.
We also operate VisualCities.com, a destination web site that offers
information, content, membership benefits, products and services targeted at the
visual communication computer products community. We intend to utilize this web
site to sell visual communications products, including our own products and
products manufactured by third parties, to users in our targeted market.
RECENT ACQUISITIONS, FINANCINGS AND OTHER EVENTS
ACQUISITIONS
We have implemented a strategy to acquire e-commerce service providers in
order to expand our range and depth of services. The acquisitions completed
through March 31, 2000 consist of:
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Renaissance Multimedia
On February 15, 2000, we acquired Renaissance Computer Art Center, Inc,
d/b/a Renaissance Multimedia, a New York City-based digital communication
company focused on designing, implementing and supporting Internet web sites and
digital businesses through the use of new media. We acquired Renaissance
Multimedia through a merger of Renaissance Computer Art Center, Inc. with and
into RCAC Acquisition Corp., a wholly-owned subsidiary which we formed for this
specific transaction. RCAC changed its name to Renaissance Multimedia Inc.
following the merger.
The Renaissance Multimedia merger was completed pursuant to the terms of an
Agreement and Plan of Merger, dated February 15, 2000. Pursuant to this merger
agreement, we issued an aggregate of 449,870 shares of our common stock and paid
an aggregate of $250,000 to the stockholders of Renaissance Multimedia at the
effective time of the merger. One-half of the shares issued are subject to an
escrow agreement to protect against any inaccuracy in any of the representations
and warranties of Renaissance Computer Art Center, Inc. and its stockholders
contained in this merger agreement.
The 449,870 shares of our common stock were issued in reliance upon an
exemption from registration under the Securities Act of 1933 pursuant to Section
4(2) thereof. As a result, these shares are subject to restrictions on transfer
under the applicable provisions of the Securities Act. In accordance with the
Renaissance Multimedia merger agreement, we entered into a registration rights
agreement in which we granted the parties who received these shares customary
piggy back registration rights in connection with future registration statements
which we may file under the Securities Act.
Under lock-up agreements entered into at the time of the Renaissance
Multimedia merger, each party who received any of the shares of our common stock
issued in the merger agreed to limit sales of these shares to 10% of the total
shares each received during the period from six to nine months following the
merger, and an additional 10% during the following three months.
We also have entered into a three year employment agreement with Andrew
Edwards, the president of Renaissance Multimedia at the time of the merger.
Under this agreement, Mr. Edwards will serve as one of our vice presidents and
president of Renaissance Multimedia, Inc. This agreement also contains
restrictions on Mr. Edwards engaging in competition with us for the term of the
agreement and for one year thereafter and provisions protecting our proprietary
rights and information.
Junction 15
On March 9, 2000, we acquired Junction 15 Limited, a London, England-based
digital communication company focused on designing, implementing and supporting
Internet web sites and digital businesses through the use of new media. We
acquired Junction 15 through our purchase of all of the outstanding capital
stock of Junction 15 from Junction 15's shareholders.
The Junction 15 acquisition was completed pursuant to the terms of a Stock
Purchase Agreement, dated March 9, 2000, between us and the shareholders of
Junction 15. Pursuant to the acquisition agreement, we issued an aggregate of
681,818 shares of our common stock and paid an aggregate of $250,000 to the
Junction 15 shareholders.
The 681,818 shares of our common stock that we issued in this acquisition
transaction were issued in reliance upon an exemption from registration under
the Securities Act of 1933. As a result, these shares are subject to
restrictions on transfer under the applicable provisions of the Securities Act.
In accordance with the acquisition agreement, we entered into a registration
rights agreement in which we granted the parties who received these shares
customary piggy back registration rights in connection with future registration
statements which we may file under the Securities Act.
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We also entered into lock-up agreements with each of the former
shareholders of Junction 15 regarding their disposition of the shares of our
common stock that we issued in the acquisition transaction, the extent of the
lock-up being dependent upon the former shareholders' relationships with
Junction 15. For those former shareholders who were directors of Junction 15 at
the time of the acquisition transaction and an affiliate, who received an
aggregate 583,767 shares of our common stock in the transaction, the lock-up
agreements prohibit the disposition of such shares prior to March 9, 2002,
except for (a) 10% of the total shares each received during the period of
September 9, 2000 to March 8, 2001, (b) an additional 10% during the period of
March 9, 2001 to September 8, 2001, and (c) an additional 10% during the period
of September 9, 2001 to March 8, 2002. For those former shareholders who were
not directors of Junction 15 at the time of the acquisition transaction, who
received an aggregate 98,051 shares of our common stock in the transaction, the
lock-up agreements prohibit the disposition of such shares prior to March 9,
2001.
We also have entered into a three-year employment agreement with each of
Ian McCalla, the Managing Director of Junction 15, and Paul Simpson, a Director
of Junction 15 at the time of the transaction. Under his agreement, Mr. McCalla
will serve as Managing Director of Junction 15 and receive a base annual salary
of 90,000 (or $144,000, based on currency exchange rates in effect on March 31,
2000). This base salary will increase to 100,000 on March 9, 2001 (or $160,000,
based on currency exchange rates in effect on March 31, 2000). Mr. McCalla will
also be entitled to annual bonuses based upon Junction 15's performance during
the employment period. Under his agreement, Mr. Simpson will serve as a Director
of Junction 15 and receive a base salary of 50,000. Mr. Simpson will also be
entitled to annual bonuses based upon the gross profit to Junction 15 from
projects generated through Mr. Simpson's sales efforts. These employment
agreements also contain restrictions on Messrs. McCalla or Simpson engaging in
competition with us for the term of the agreement and for one year thereafter
and provisions protecting our proprietary rights and information.
PWR Systems
Effective March 27, 2000, we acquired PC Workstation Rentals, Inc., d/b/a
PWR Systems, a Long Island, New York-based designer and integrator of Internet,
intranet and extranet systems and other computer networks and
value-added-reseller of computer and digital communication equipment. The
acquisition was in the form of a merger of PWR into PWR Acquisition Corp., a
wholly-owned subsidiary we formed for this transaction.
The PWR Systems acquisition was completed pursuant to an Agreement and Plan
of Merger, dated as of February 28, 2000, among us, PWR Acquisition, PWR and
PWR's shareholders. Pursuant to the merger agreement, at the closing of the
transaction, we made a cash payment to the PWR shareholders of $1 million and
delivered to the PWR shareholders our promissory notes in the aggregate
principal amount of $500,000. These notes are payable in twelve equal monthly
installments, commencing on April 27, 2000. These notes are convertible into
shares of our common stock, at a conversion price of $3.00 per share, and bear
interest at 6.30%. Accrued interest on these notes is payable with the monthly
principal payments. These notes have been guaranteed by our PWR subsidiary. The
stock portion of the acquisition consideration payable at closing was in the
form of 1,500,000 shares of our common stock.
The PWR Systems merger agreement provides for additional contingent
consideration of up to $350,000 per year for the three-year period following the
closing of the acquisition, based upon increases in PWR's earnings before
interest, taxes, depreciation and amortization. We are also obligated to issue
additional shares of our common stock if the market price of our common stock
falls below $1.00 per share for any consecutive 30-day period during the
one-year period following the closing of the acquisition.
Of the shares of our common stock issued at closing of the PWR Systems
acquisition, 1,470,000 shares are subject to lock-up agreements between each PWR
shareholder and us. Under these lock-up agreements, the PWR shareholders are
prohibited from selling or otherwise transferring any of the shares that they
receive at closing, except for (a) 10% of the shares received during a six month
period commencing six months after the closing, (b) an additional 10% during the
next six-month period, and (c) an additional 10% during the next six-month
period. All remaining shares held by the PWR shareholders two years after the
closing will be free of any sale restriction under
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the lock-up agreements. Any shares issued upon conversion of our promissory
notes delivered at closing in the aggregate principal amount of $500,000 will
not be subject to these lock-up agreements.
All of the shares of our common stock issued in the PWR Systems acquisition
transaction, including those that may be issued upon conversion of the notes
delivered at closing, will be issued in reliance upon an exemption from
registration under Section 4(2) of the Securities Act of 1933. As a result,
these shares will be subject to restrictions on transfer under the applicable
provisions of the Securities Act. In accordance with the merger agreement, at
the closing, we entered into a registration rights agreement in which we granted
the PWR shareholders one demand and customary piggy-back registration rights.
In accordance with the acquisition agreement, we made a capital
contribution of $2 million to PWR immediately following the closing.
We have entered into three year employment agreements with each of PWR's
executive officers and sole stockholders, Vincent DiSpigno and David N. Salav.
The employment agreements with each of Messrs. DiSpigno and Salav provide for
their service as vice presidents of Vizacom and as executive officers of our PWR
subsidiary. We were also obligated to expand our board of directors and cause
the election of each of Messrs. DiSpigno and Salav to our expanded board. Each
of these employment agreements also provide for annual base salaries of
$200,000, provide for annual bonuses of up to $25,000, based upon PWR attaining
specified performance thresholds, and contain restrictions on their engaging in
competition with us for the term of the agreement and for one year thereafter
and provisions protecting our proprietary rights and information.
Prior to the closing, PWR delivered to the PWR shareholders promissory
notes in the aggregate principal amount of $888,638. This amount represents an
estimate of PWR's accumulated retained earnings as of March 27, 2000. These
notes bear interest at 6.30% per annum, and are payable in four quarterly
payments, commencing June 27, 2000. The principal amount of these PWR notes will
be adjusted to reflect PWR's actual accumulated retained earnings at March 31,
2000. Payment of any amount outstanding under these PWR notes will be
accelerated to the date of our receipt of aggregate gross proceeds of at least
$15 million from the sale of our securities since November 12, 1999. We have
guaranteed these PWR notes.
CREDIT FACILITY
In the first quarter of 2000, we obtained a two year $1 million line of
credit facility with Churchill Consulting. The interest rate on the line of
credit is 8% per year, compounded monthly, on the outstanding principal amount.
In connection with our first borrowing under this line of credit facility, we
issued to Churchill warrants exercisable for seven years to purchase 250,000
shares of our common stock at $3.00 per share. Under this line of credit
facility, all future borrowings will be due and payable 180 days after funding.
In February 2000, we borrowed $1 million under this line of credit facility.
This amount has been repaid. As of March 31, 2000, no amount was outstanding
under this line of credit facility.
PRIVATE PLACEMENTS OF OUR COMMON STOCK
In March 2000, we sold a total of 936,954 shares of our common stock to 45
accredited investors for gross proceeds of $4,216,293. The issuances of theses
shares were private transactions exempt from registration under Section 4(2) of
the Securities Act of 1933.
Also in March 2000, we accepted subscriptions for and sold a total of
762,471 shares of our common stock to eleven foreign investors for gross
proceeds of $3,392,996. The issuances of these shares were private transactions
exempt from registration pursuant to Section 4(2) of, and Regulation S
promulgated under, the Securities Act.
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PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information gives effect to the Renaissance Multimedia merger, Junction 15
acquisition and PWR Systems merger, using the purchase method of accounting, and
the effect of the recent sales of our common stock necessary to complete these
acquisitions, after giving effect to the pro forma adjustments described in the
accompanying notes. We are providing this pro forma financial information to aid
you in your analysis of the financial condition of Vizacom following these
mergers, acquisition and financings. We derived this pro forma financial
information from the audited financial statements of Vizacom, Renaissance
Multimedia, Junction 15 and PWR Systems, each for the year ended December 31,
1999. The unaudited pro forma condensed consolidated financial information
should be read in conjunction with the audited historical financial statements
and related notes of Vizacom, Renaissance Multimedia, Junction 15 and PWR
Systems, which are each included in this Annual Report on Form 10-KSB. The
unaudited pro forma condensed consolidated balance sheet gives effect to these
mergers, acquisition and financings as if they had each occurred on December 31,
1999 and combines the unaudited condensed consolidated historical balance sheets
of Vizacom, Renaissance Multimedia, Junction 15 and PWR Systems as of December
31, 1999. The unaudited pro forma condensed consolidated statements of income
for the year ended December 31, 1999 assume these mergers, acquisition and
financings were each effected on January 1, 1999. The unaudited pro forma
condensed consolidated financial information is presented for illustrative
purposes only and does not purport to be indicative of the operating results or
financial position that would have actually occurred if these mergers,
acquisition and financings had each been effected on the dates indicated, nor is
it indicative of our future operating results or financial position. The pro
forma adjustments are based on the information and assumptions available as of
March 31, 2000.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
Historical
---------------------------------------------------- Pro Forma Pro Forma
Vizacom Renaissance Junction 15 PWR Adjustments Consolidated
------- ----------- ----------- --- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1,730,495 $ 131,316 $ 40 $ 457,850 $ 2,885,175 (A) $ 5,204,876
Marketable securities 2,746,678 -- -- -- (1,992,519)(B) 754,159
Receivables, net 733,410 245,270 231,862 3,692,224 -- 4,902,766
Inventories 1,457,604 -- 5,363 567,836 -- 2,030,803
Prepaid expenses and
other current assets 526,552 19,854 -- 3,426 -- 549,832
------------ ------------ ------------- ----------- ------------ --------------
Total current assets 7,194,739 396,440 237,265 4,721,336 892,656 13,442,436
Property and equipment,
net 828,108 81,677 39,009 6,189 -- 954,983
Goodwill and other
intangibles, net 118,665 -- -- -- 13,022,923 (F) 13,141,588
Restricted cash 259,838 -- -- -- -- 259,838
Deferred consulting costs 1,269,859 -- -- -- -- 1,269,859
Other assets, net 803,762 14,424 -- 18,904 -- 837,090
------------ ------------ ------------- ----------- ------------ --------------
Total assets $10,474,971 $ 492,541 $ 276,274 $4,746,429 $13,915,579 $ 29,905,794
============ ============ ============= =========== ============ ==============
Revolving lines of credit $ -- $ -- $ -- $1,748,131 $ -- $ 1,748,131
Notes payable -- 13,663 -- 850,000 1,281,015 (C) 2,144,678
Accounts payable 4,111,748 57,451 38,859 1,340,160 -- 5,548,218
Accrued and other
liabilities 1,816,744 158,352 100,137 46,288 -- 2,121,521
Value-added taxes payable 393,927 -- 62,290 -- -- 456,217
Due to shareholder -- 19,475 -- -- (19,475)(D) --
Current portion of capital
lease obligations 63,792 6,793 -- -- -- 70,585
Current portion of long-
term debt 155,554 -- 66,151 -- (66,151)(A) 155,554
------------ ------------ ------------- ----------- ------------ --------------
Total current liabilities 6,541,765 255,734 267,437 3,984,579 1,195,389 12,244,904
Capital lease obligation,
long term 98,265 1,803 -- -- -- 100,068
Long-term debt, less
current maturities 100,410 39,381 19,194 -- (19,194) (A) 139,791
------------ ------------ ------------- ----------- ------------ --------------
Total liabilities 6,740,440 296,918 286,631 3,984,579 1,176,195 12,484,763
------------ ------------ ------------- ----------- ------------ --------------
Common stock, $.001
par value 7,236 1,000 6,935 13 (4,198)(E) 10,986
Additional paid-in capital 49,851,699 119,577 26,534 17,107 13,519,532 (E) 63,534,449
(Accumulated deficit)
retained earnings (47,864,635) 75,046 (43,826) 781,015 (812,235)(E) (45,872,116)
1,992,519 (B)
Treasury stock (10,395) -- -- (36,285) 36,285 (E) (10,395)
Other comprehensive
income (loss) 1,750,626 -- -- -- (1,992,519)(B) (241,893)
------------ ------------ ------------- ----------- ------------ -------------
Total stockholders'
equity 3,734,531 195,623 (10,357) 761,850 12,739,384 17,421,031
------------ ------------ ------------- ----------- ------------ -------------
Total liabilities and
stockholders' equity $10,474,971 $ 492,541 $ 276,274 $4,746,429 $13,915,579 $ 29,905,794
============ ============ ============= =========== ============ =============
</TABLE>
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
PRO FORMA ADJUSTMENTS
December 31, 1999
NOTE A CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Renaissance Junction 15 PWR Financing Total
<S> <C> <C> <C> <C> <C>
Cash portion of purchase price $ (250,000) $ (250,000) $(1,000,000) $ -- $(1,500,000)
Legal and accounting fees for
acquisitions (175,000) (85,000) (200,000) -- (460,000)
Finder's fees paid in cash -- (69,480) -- -- (69,480)
Funds raised as a requirement
of PWR acquisition -- -- -- 5,000,000 5,000,000
------------ ------------- ------------ ----------- ------------
(425,000) (404,480) (1,200,000) 5,000,000 2,970,520
Repayment of loans concurrent
with purchase -- (85,345) -- -- (85,345)
------------ ------------- ------------ ----------- ------------
Net impact of acquisitions
and financing on cash $ (425,000) $ (489,825) $(1,200,000) $5,000,000 $ 2,885,175
============ ============= ============ =========== ============
</TABLE>
NOTE B MARKETABLE SECURITIES
In an August 10, 1999 agreement, the Company agreed to pay a finder a 10% fee,
payable in shares of Xceed, Inc. in connection with acquisitions at that date's
market value of $13.375. The fees were calculated as follows:
<TABLE>
<CAPTION>
Renaissance PWR Total
<S> <C> <C> <C>
Gross purchase price . . . . . . $ 2,000,000 $ 6,000,000
10% fee. . . . . . . . . . . . . 200,000 600,000
Conversion price per agreement . 13.375 13.375
Shares due to finder under the
agreement . . . . . . . . . 14,953 44,860
Market value of Xceed shares
at closing date . . . . . . 39.875 31.125
------------- -------------
Finder's fee paid in Xceed
shares. . . . . . . . . . . $ 596,251 $ 1,396,268 $ 1,992,519
============= ============= =============
Realized gain on disposition
of Xceed shares . . . . . . $ (127,061) $ (381,279) $ (508,340)
============= ============= =============
</TABLE>
NOTE C NOTES PAYABLE
<TABLE>
<CAPTION>
PWR Total
<S> <C> <C>
Note payable for retained earnings at closing $ 781,015 $ 781,015
Convertible note . . . . . . . . . . . . . 500,000 500,000
------------ -----------
Note payable resulting from PWR acquisition . $ 1,281,015 $1,281,015
============ ===========
</TABLE>
NOTE D DUE TO SHAREHOLDER
<TABLE>
<CAPTION>
Renaissance Total
<S> <C> <C>
Debt forgiven by shareholder on acquisition
closing. . . . . . . . . . . . . . . . . $ 19,475 $ 19,475
============ ===========
</TABLE>
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NOTE E STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Renaissance Junction 15 PWR Financing Total
<S> <C> <C> <C> <C>
Common shares issued in
acquisitions and financing $ 449,870 $ 681,818 $ 1,500,000 $ 1,117,739 $ 3,749,427
============= ============ ============ ============= ============
Market price per share $ 3.89 $ 3.30 $ 3.00 $ 4.47
Common stock, $.001 par value 450 682 1,500 1,118 3,750
Elimination of acquired
companies' common stock (1,000) (6,935) (13) -- (7,948)
----------- ------------ ------------ ------------ ------------
Effect on common stock account $ (550) $ (6,253) $ 1,487 $ 1,118 $ (4,198)
============ ============ ============ ============ ============
Paid-in capital $ 1,749,550 $ 2,249,318 $ 4,498,500 $ 4,998,882 $13,496,250
Elimination of acquired
companies' paid-in capital (119,577) (26,534) (17,107) -- (163,218)
Value of 50,000 options issued
to PWR consultants -- -- 186,500 -- 186,500
------------ ------------ ------------ ------------ ------------
Elimination of acquired companies:
Effect on additional paid-in
capital $ 1,629,973 $ 2,222,784 $ 4,667,893 $ 4,998,882 $13,519,532
============ ============ ============ ============ ============
(Accumulated deficit) retained
earnings $ 75,046 $ (43,826) $ 781,015 $ -- $ (812,235)
============ ============ ============ ============ ============
Treasury stock $ -- $ -- $ (36,285) $ -- $ 36,285
============ ============ ============ ============ ============
</TABLE>
NOTE F GOODWILL AND OTHER INTANGIBLES
Goodwill arose from the preliminary assignment of fair values to the assets
and liabilities acquired. The amount may increase or decrease as a result of the
contingent consideration on the PWR acquisition. Additionally, further
assessment of fair values and completion of any appraisals may result in changes
in either valuation or allocation of the excess purchase price over fair value.
For the above pro forma goodwill was determined as follows:
<TABLE>
<CAPTION>
Renaissance Junction 15 PWR Total
<S> <C> <C> <C> <C>
Cash paid as indicated in Note A $ 425,000 $ 404,480 $ 1,200,000 $ 2,029,480
Stock issued as indicated in Note E 1,750,000 2,250,000 4,500,000 8,500,000
Notes issued as indicated in Note C -- -- 500,000 500,000
Marketable securities issued as indicated in Note B 596,251 -- 1,396,268 1,992,519
Forgiveness of shareholder debt upon acquisition (19,475) -- -- (19,475)
Consultant options indicated in Note E -- -- 186,500 186,500
------------ ------------ ----------- ------------
Total consideration paid 2,751,776 2,654,480 7,782,768 13,189,024
Less: Fair value of acquired net assets (liabilities)
based on preliminary assessment 195,623 (10,357) (19,165) 166,101
------------ ------------ ----------- ------------
Goodwill and other intangibles $ 2,556,153 $ 2,664,837 $ 7,801,933 $13,022,923
============ ============ ============ ============
</TABLE>
10
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Historical
---------------------------------------------------- Pro Forma Pro Forma
Vizacom Renaissance Junction 15 PWR Adjustments Consolidated
------- ----------- ----------- --- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $19,891,357 $1,531,400 $ 717,804 $15,928,205 -- $38,068,766
Cost of goods sold 6,371,106 546,490 303,840 13,094,364 -- 20,315,800
------------ ----------- ----------- ------------ ------------- ------------
Gross profit 13,520,251 984,910 413,964 2,833,841 -- 17,752,966
Expenses:
Selling, general and
administrative expenses 17,175,520 925,276 392,939 2,371,756 $ 179,000 (G) 21,044,491
Product development 1,027,447 -- -- -- -- 1,027,447
Amortization of goodwill
and other intangibles 2,219,363 -- -- -- 1,860,418 (I) 4,079,781
Unrealized holding gain (322,652) -- -- -- -- (322,652)
Realized gain (642,444) -- -- -- (508,340)(B) (1,150,784)
Other (income) expense,
net (59,503) (1,668) -- 83,031 47,871 (H) 69,731
------------ ----------- ----------- ------------ ------------- ------------
19,397,731 923,608 392,939 2,454,787 1,578,949 24,748,014
------------ ----------- ----------- ------------ ------------- ------------
(Loss) income before
income taxes (5,877,480) 61,302 21,025 379,054 (1,578,949) (6,995,048)
Income tax (benefit)
expense (250,978) 23,000 -- 12,541 -- (215,437)
------------ ----------- ----------- ------------ ------------- ------------
Net (loss) income (5,626,502) 38,302 21,025 366,513 (1,578,949) (6,779,611)
Dividends on Series A
and Series C
preferred stock (56,641) -- -- -- -- (56,641)
------------ ----------- ----------- ------------ ------------- ------------
Net (loss) income
attributable to
common stockholders $(5,683,143) $ 38,302 $ 21,025 $ 366,513 $ (1,578,949) $ (6,836,252)
============ =========== =========== ============ ============= =============
Pro forma loss per share -
Basic and diluted:
Net loss per share $ (0.95) $ (0.70)
============ =============
Weighted average
number of shares 5,996,507 9,745,934
============ =============
</TABLE>
11
<PAGE>
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
PRO FORMA ADJUSTMENTS
For the Year Ended December 31, 1999
NOTE G EMPLOYMENT AGREEMENTS
Represents the additional cost to PWR of $61,000 and Junction 15 of $118,000 for
compensation expense as a result of the employment agreements.
NOTE H INTEREST EXPENSE
Represents interest at 6.3% for the PWR retained earnings note and convertible
note, assuming no conversion (described in Note C).
NOTE I AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
To record amortization based on a seven-year life.
-12-
<PAGE>
INDUSTRY BACKGROUND
Today's business environment has forced companies to operate more
efficiently in order to better serve their customers' needs. In order to do
this, businesses are relying more and more on their access to information.
Computers and digital communication technology now allow companies to better
create, store, process and distribute information, whether internally or to and
from their customers, suppliers and business partners. As the information
requirements of companies have become more complex, organizations have required
a broader range of information and digital communications technology services,
including strategy, web site architecture design, application development,
systems integration and technical support. Further, the Internet has evolved
into a business transaction platform from its original use as an informational
base and reference source. However, most companies lack the ability and
resources to design, build, maintain and support their web sites, information
systems, infrastructure backbones and user-interfaces. Many also do not have the
capacity to support and improve their on-line marketing and sales in today's
fast-paced and global marketplace. Accordingly, many companies are seeking to
outsource certain or all of these responsibilities to service providers. This
trend toward outsourcing and a focus by companies on their core businesses has
resulted in a dramatic increase in the number of e-commerce service providers.
However, few service providers can perform all of these services.
The information technology services market has grown most quickly in
countries, such as the United States and those in western and northern Europe,
where high personal computer usage and technology adoption rates among
businesses and consumers allow for potentially large client bases. We believe
that the information technology and digital communications services market in
western and northern Europe will experience a significant growth in the next few
years. We intend to leverage our experience and reputation in the United States
and Europe, and to make further strategic acquisitions, to benefit from this
anticipated growth in the United States and Europe.
Today, digital communications e-commerce solutions are largely
Internet-based. Forrester Research, Inc. projects that the size of the worldwide
Internet professional services market will grow from $2.4 billion in 1997 to
$32.8 billion in 2002. Internet-based solutions include intranets, extranets and
web sites. Intranets, extranets and web sites provide companies with a new set
of tools for improving basic business processes such as communications, data
transmission, marketing, transaction processing and customer service. An
intranet enables a company's employees to receive corporate information and
training efficiently, communicate through e-mail, use the internal network's
business applications, and access proprietary information and legacy databases.
An extranet can extend part or all of the functionality of a secure intranet to
selected business partners outside of the company, such as customers, suppliers
or distributors. On the consumer side, web sites support the full cycle of
customer interaction with a brand. Web sites can present advertising and
marketing materials in new and compelling fashions, display products and
services in electronic catalogs, offer products and services for sale online,
process transactions, provide customers with rapid and accurate responses to
their questions, and gather customer feedback efficiently.
Businesses are rapidly adopting e-commerce solutions. Companies
implementing e-commerce solutions often must rely on fundamentally new business
approaches because these solutions utilize new technologies, allow companies to
implement a broad scope of business process improvements and are often
international in scope. Businesses seeking to realize the benefits provided by
e-commerce solutions face a formidable series of challenges presented by the
need to link business strategy with new and rapidly changing technologies and
continuously updated content. Before creating an intranet, extranet or web site,
a company must first conduct a thorough needs assessment to review its strategic
business requirements and compare them to the capabilities of its existing
processes and systems. Next, a company must design the solution and develop an
implementation plan. The implementation, establishment and maintenance of the
solution typically will require significant technical expertise in a number of
areas, such as electronic commerce systems, security and privacy technologies,
application and database programming, mainframe and legacy integration
technologies and advanced user interface and multimedia production.
Similarly, recent trends are changing the marketing communications
requirements of businesses throughout the world. Businesses must be able to
develop and execute marketing strategies rapidly, because shortened product life
cycles reduce lead times for marketing campaigns. New media, including
Internet-related services, have emerged as an integral component of marketing
and communications strategy. These new media and the increasing
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<PAGE>
complexity of sophisticated digital delivery, storage and multimedia
enhancement tools and technologies enable companies to improve the effectiveness
of communications, but pose additional challenges to businesses striving to link
business strategy with rapidly changing technologies.
To perform the multitude of Internet professional services functions
in-house, including integrated marketing communications, a company would have to
make substantial commitments of time, money, management and technical personnel
to keep current with rapidly evolving technologies, content presentation
techniques and competitors' offerings. Professionals with the requisite
strategic, technical and creative skills are often in short supply and many
organizations are reluctant to expand their internal information systems or
marketing departments for particular engagements at a time when they are
attempting to minimize fixed costs in order to increase returns on investment.
At the same time, external economic factors encourage organizations to focus on
their core competencies and limit workforces in the information technology
management and marketing areas. Accordingly, many businesses have chosen to
outsource a significant portion of the design, development and maintenance of
their intranets, extranets and web sites to independent professionals. These
independent professionals can leverage accumulated strategic, technical and
creative talent and track developments in a field characterized by extremely
short technology, process and content life cycles.
In addition to confronting issues related to their information and digital
communication equipment and the design and content of their web sites,
e-commerce companies are finding that their customers often have questions about
products and return policies, they want to know the status of their orders and
they want to give their credit card information over the telephone rather than
by over the Internet. While having a brand name and sales information on their
web site may attract consumers to their web sites, the inability to give real
time answers to potential customers can hinder the closing of the sale. One
industry consultant reported that 39% of shoppers testing web sites failed in
their buying attempts because the customers found sites to be too difficult and
estimated that customers' frustrations and disappointments would result in a
loss of more than $6 billion of potential on-line revenue for the 1999 holiday
season. Another consultant's survey showed that less than 30% of companies
respond to e-mail within 24 hours, and when customers do make contact with
someone, they get wrong answers half the time. Additionally, without having
personal contact with a potential buyer, the opportunity up-sell higher quality,
higher priced goods, and to sell additional products, is lost.
OUR E-COMMERCE SOLUTIONS
Our mission is to provide clients with the vision, expertise and resources
required to help build their businesses using interactive e-commerce solutions.
To capitalize on the opportunity presented by the rapid growth in demand for
such services, we are building and continuing to expand a professional services
firm with offices in the United States and Europe, and we intend to expand into
other important markets worldwide. We are an integrated international firm, with
local offices that can develop close client relationships and gain an in-depth
understanding of client needs. Each office benefits from the resources of our
overall organization. For example, individual offices may draw as needed upon
the assistance of one or more additional offices with specialized creative or
technical expertise. In addition, all of our offices can utilize and market our
multi-national, multi-lingual 24/7/365 web-enabled customer service call
centers.
We believe that our operational model enables us to scale rapidly by
leveraging our core resources as our operations expand. First, we believe that
our aggregation and deployment of the accumulated experience and expertise of
our network of offices provides clients with enhanced business solutions.
Second, as we build centrally accessable technology and operational resources,
we expect to be able to scale efficiently, through the growth of existing
offices and the acquisition of new offices, which we also expect to provide us
with significant numbers of additional skilled personnel. Third, our brand
development campaign, which reinforces the message that our interactive
solutions are expected to provide a secure, reliable, high-quality choice for
the provision of e-commerce professional services, increases our ability to
access and influence key client decision makers. Finally, our ability to provide
multi-national, multi-lingual 24/7/365 web-enabled customer service through our
call centers enables us to address our clients' compelling customer service
needs.
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<PAGE>
BUSINESS STRATEGY
Our objective is to become and remain a leading international e-commerce
services and communications firm. Our strategy to achieve this objective
includes our intent to offer, primarily within the business-to-business, or B2B,
and business-to-consumer, or B2C, markets, a full portfolio of services, or
solutions, to satisfy our customers' e-commerce needs. We intend to accomplish
our strategic objectives through the following:
- Solve Internet Customer Service Problems. We intend to
minimize customer service frustrations by providing a human interface
between Internet and other businesses and their customers. We have
licensed CosmoCall Universe software, in order to provide to our
e-commerce clients live, text-based "chat," voice, video and e-mail
customer and technical support through our multi-national,
multi-lingual 24/7/365 call centers. In connection with this strategy,
we have established a multi-lingual call center in Aachen, Germany to
supplement our call centers and telemarketing operations in
Nottingham, England and Nashua, New Hampshire. We have web-enabled
each of these call centers to be capable of providing value-added
e-commerce customer care, sales and technical support services to
Internet and other e-commerce businesses. We intend to market our
ability to provide multi-national, multi-lingual call center customer
and technical support and services on a 24/7/365 basis to Internet and
other businesses which lack the assets and expertise to provide these
services in a cost-effective and efficient manner. Global Sight Inc.
has indicated that approximately 42% of the people using the Internet
are non-English speakers. We believe that our call center capabilities
will help us attract clients desiring to provide these non-English
speaking users with quality sales, customer and technical support.
- Provide an Integrated Full Range of E-Commerce Services. We
believe that, by making available to our targeted market a full range
of e-commerce services, we can provide our clients with customized,
complete and efficient turn-key solutions to their e-commerce and
digital communication needs. We further believe that, by making
available to our targeted market all of our services and products on
an integrated basis, we may be able to increase our revenues by
obtaining additional client accounts and increasing the average
revenues generated per client account.
- Provide Web Site Architecture. We offer to our clients the
ability to support their business, management and dissemination of
information and marketing and sales efforts. We can build the
architecture to maintain and support customized networks for the
storage and retrieval of information, for internal use on intranets,
for use with vendors and suppliers in extranets, and for use on the
Internet in connection with marketing and sales and other uses. We can
design and implement web sites for use by businesses in their
marketing and sales of their products and dissemination of other
information. We can also supply the support services for the client's
Internet and other marketing and sales efforts, by offering
outsourcing services tailored for e- commerce.
- Use Integration of Services as a Tool for Building
Relationships. Our client relationships have typically begun with a
single assignment that might encompass an electronic commerce system,
a web site or building an Internet backbone. Such single project
relationships allow clients to try our services with minimal long-term
risk. We intend to expand our relationships beyond the single-project
assignments to include additional projects in other disciplines. We
intend to promote the benefits of our integrated services offering and
leverage our integrated approach as a tool for building and enhancing
client relationships.
- Build Our Position as a Leading Internet Services Firm. We
intend to continue investing significantly in identifying, reviewing
and integrating the latest Internet technologies and accumulating and
deploying the best demonstrated practices for developing and
implementing Internet solutions. We intend to develop a library of
partially pre-built Internet solutions that combine our methodologies,
services and reusable software and content objects with third-party
-15-
<PAGE>
software. We intend to continue leveraging our international presence,
operational scale and professional marketing tools, which provide each
of our offices with resources and credibility to convince client
decision makers that we can provide successful e-commerce solutions to
meet the most demanding business needs. We also intend to remain
focused on delivering the e-commerce solution best suited to a
client's needs.
- Continue to Expand Geographic Presence. We intend to
continue to expand our geographic presence through acquisitions and
internal growth. Our acquisition efforts are focused on strategic and
international opportunities. We believe that in the fragmented market
for providing e- commerce solutions, rapidly building a critical mass
of strategic, technical and creative talent through both internal
growth and acquisitions will provide us with a substantial competitive
advantage. As of March 31, 2000, we had offices in major markets in
the United States, the United Kingdom and Germany.
- Foster Creative Excellence. We strive to provide creative
solutions in all areas of interactive services to meet or exceed the
highest standards of service within each individual discipline. In
order to maintain high levels of creativity and quality, we place
great importance on recruiting and retaining talented employees. We
have received numerous honors and awards, including:
- Renaissance Multimedia was listed as one of the
top 50 fastest growing companies in New York City for 1999 by
Deloitte & Touche, LLP.
- PWR Systems was the 385th fastest growing private company in the
United States in 1998, according to Inc. Magazine's Inc. 500
Special Edition (October, 1999).
- For 1999, Deloitte & Touche, LLP listed PWR Systems as the third
fastest growing technology company on Long Island and the 367th
fastest growing technology company in the United States.
- PWR received an Entrepreneurial Spirit Award sponsored
by Hofstra University and KPMG LLP, placing fifth on their
list of Long Island's fastest growing private firms.
- Sm@rt Reseller magazine listed PWR Systems as number 35 on
its Sm@rt 50 report (November 15, 1999 issue).
- PWR Systems also received a 1999 Apple Reseller of the Year
award for sales excellence and superior service.
- Capitalize on Market Opportunities in New Media. We are
striving to obtain a leadership position in the development and
application of new media marketing communication services and
products. We believe that the proliferation of the Internet and other
new media will continue to provide us with substantial opportunities.
These new media services and products enable companies to better focus
their marketing messages and may ultimately facilitate one-on-one
marketing to specific individuals. To this end, we seek to provide
clients with integrated new media design and development services as
well as support in implementing and maintaining key content delivery
technologies.
- Expansion of Direct Marketing Operations. We have expanded our
direct marketing operations to include e-commerce marketing
services. These services may be integrated with the direct marketing
and telemarketing services available through our web-enabled call
centers, or may be provided on a stand-alone basis.
- Leverage Operational Economies of Scale. We provide certain
operational and administrative services centrally, allowing our
various offices to benefit from the economies of scale created by a
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<PAGE>
larger operation while enabling our offices to focus on their core
competencies of providing superior client services. These centrally
provided services may include business development programs,
operations management guides, client support assistance, human
resources programs, financial reporting and forecasting, performance
appraisals and standardized methodologies.
In implementing our business strategy we face numerous risks, including:
- Our failure to successfully compete for Internet
professionals may affect our business operations. We are dependent on
key personnel, the loss of any of their services could have a material
adverse effect on us. Competition for qualified sales, technical and
other personnel, including expert Windows-environment programmers, is
intense, and we may not be able to attract or retain highly qualified
employees in the future. Our future success depends in significant
part upon the continued service of our current key technical, sales
and senior management personnel. The loss of the services of one or
more of these key employees could have a material adverse effect on
our business, operating results and financial condition. Further,
additions of new and departures of existing personnel, particularly in
key positions, can be disruptive, which also could have a material
adverse effect upon us.
- Our success is dependent on the continued growth of the Internet
and e-commerce services market. The markets for the sale of goods
over the Internet and for e-commerce services are new and
emerging. Our future revenues and growth will be substantially
dependent upon the widespread acceptance of the Internet as a medium
for commerce by consumers and e-commerce services. Rapid growth in the
use of and interest in the Internet and e-commerce services is a
recent phenomenon. This growth may not continue. Concerns about fraud,
privacy and other problems may mean that a sufficiently broad base of
consumers will not adopt the Internet as a medium for commerce. These
concerns may increase as additional publicity over privacy issues over
the Internet increases. Market acceptance for recently introduced
services and products over the Internet is highly uncertain, and there
are few proven services and products. In order to expand our user
base, we must appeal to and acquire consumers who historically have
used traditional means of commerce to purchase goods.
- Our e-commerce business is dependent on the development and
maintenance of the Internet and service center infrastructures. This
includes maintenance of a reliable network, with the necessary speed,
data capacity and security, as well as timely development of
complementary products such as high speed modems for providing
reliable Internet access and services. The Internet has experienced a
variety of outages and other delays as a result of damage to portions
of its infrastructure, and it could face outages and delays in the
future. These outages and delays could reduce the level of Internet
usage, as well as the level of traffic and the processing of
transactions on our web sites and through our service centers. In
addition, the Internet could lose its viability due to delays in the
development or adoption of new standards and protocols to handle
increased levels of activity or due to increased governmental
regulation. The infrastructure and complementary products or services
necessary to make the Internet a viable commercial marketplace for the
long term may not be developed successfully or in a timely manner.
Even if these products or services are developed, the Internet may not
become a viable commercial marketplace for the goods and services such
as those that we offer.
- The Internet has experienced, and is likely to continue to experience,
significant growth in the numbers of users and amount of traffic.
If the Internet continues to experience increased numbers of users
, increased frequency of use or increased bandwidth requirements,
the Internet infrastructure may be unable to support the demands
placed on it. In addition, the performance of the Internet may be
harmed by increased users' or bandwidth requirements.
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<PAGE>
- Online security breaches could harm our business. A significant
barrier to online commerce and communications over the Internet is
the secure transmission of confidential information over public
networks. Our security measures may not be able to prevent all
types of security breaches. Our failure to prevent security breaches
could harm our business. We rely on encryption and authentication
technology licensed from third parties to provide the security and
authentication technology to effect secure transmission of
confidential information, including customer credit card numbers.
Advances in computer capabilities, new discoveries in the field of
cryptography or other developments may result in a compromise or
breach of the technology used by us to protect customer transaction
data. Any such compromise of our security could harm our reputation
and, therefore, our business. In addition, a party who is able to
circumvent our security measures could misappropriate proprietary
information or cause interruptions in our operations. We may need to
expend significant resources to protect against security breaches or
to address problems caused by breaches. Security breaches could damage
our reputation and expose us to a risk of loss or litigation and
possible liability. Our insurance policies carry low coverage limits,
which may not be adequate to reimburse usfor losses caused by
security breaches.
- We are dependent on key personnel, the loss of any of their services
could have a material adverse effect on us. Our future
success depends in significant part upon the continued service of our
current key technical, sales and senior management personnel. The loss
of the services of one or more of these key employees could have a
material adverse effect on our business, operating results and
financial condition. Further, additions of new and departures of
existing personnel, particularly in key positions, can be disruptive,
which also could have a material adverse effect upon us.
- We may enter into fixed-price contracts which involve financial risks.
We anticipate that certain of our e-commerce services contracts may be
on a fixed-price basis, rather than on a time and materials basis.
Further, as the average size of our e-commerce services contracts
increases, our exposure to the financial risks of fixed price
contracts could increase. We may assume greater financial risk on
fixed-price contracts than on time and materials engagements. We
have limited experience in estimating costs for our engagements,
particularly for larger projects. We may have to commit unanticipated
resources to complete some of our projects, resulting in lower gross
margins on such contracts. In addition, we may assume the fixed-price
contracts of the companies we acquire. If we or our acquired
businesses fail to estimate accurately the resources and time required
for an engagement, to manage client expectations effectively or to
complete fixed-price engagements within budget, on time and to our
clients' satisfaction, we could be exposed to cost overruns,
potentially leading to losses on these projects.
In addition, we expect to recognize revenues from fixed-fee contracts
based on our estimate of the percentage of each project completed
in a reporting period. To the extent our estimates are inaccurate,
the revenues and operating profits, if any, we report for periods
during which we are working on a project may not accurately reflect
the final results of the project and we would be required to make
adjustments to such estimates in a subsequent period.
- We generally do not expect to have long-term e-commerce solutions
contracts and the need to establish relationships with new clients
creates an uncertain revenue stream. We anticipate that our
e-commerce solutions services clients generally will retain us on a
project by project basis, rather than under long-term contracts,
although our e-commerce support services may be rendered under
one-year or other long-term service contracts. As a result, a client
may or may not engage us for further services once a project is
completed. We expect that establishment and development of
relationships with additional companies and other corporate users of
information technology will be an important component of our business
operations. The absence of long-term contracts and the need for new
clients create an uncertain revenue stream. A client which accounts
for a significant portion of our revenues in a given period may not
generate a similar amount of revenues, if any, in subsequent periods.
There is no assurance that we will be able to
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<PAGE>
add new clients or to secure new engagements with existing clients.
In addition, some of our existing clients may unilaterally reduce the
scope of, or terminate, existing projects.
- We may be subject to legal liability to our clients. Many of our
e-commerce services engagements will involve the development and
implementation of e-commerce solutions that are important to our
clients' businesses. Our failure or inability to meet a client's
expectations in the performance of services could injure our business
reputation or result in a claim for substantial damages against us
regardless of our responsibility for such failure. In addition, the
services we provide may include confidential or proprietary client
information. Although we have implemented policies to prevent such
client information from being disclosed to unauthorized parties or
used inappropriately, any such unauthorized disclosure or use could
result in a claim against us for substantial damages. Our contractual
provisions attempting to limit such damages may not be enforceable in
all instances or may otherwise fail to protect us from liability for
damages.
- The nature and extent of our international operations and currency
fluctuations could have an adverse effect on our business,
financial condition and results of operations. We believe that
achieving profitability will require, among other matters, additional
expansion of our e-commerce services into foreign markets. We
anticipate that our international operations will be denominated in
either U.S. dollars, the Euro or local currency and we do not
anticipate engaging in any hedging activities. Fluctuations to date
have not been significant. However, fluctuations in currency exchange
rates in the future could have a material adverse impact on us.
Our international business activities may be subject to:
- unexpected changes in regulatory requirements,
- tariffs and other trade barriers,
- costs of localizing products for foreign countries,
- lack of acceptance of localized products in foreign
countries,
- longer accounts receivable payment cycles,
- difficulties in collecting payment,
- difficulties in managing diverse and distant operations,
- potentially adverse tax consequences, including limitations on
the repatriation of earnings,
- reduced protection for intellectual property,
- foreign currency exchange fluctuations,
- legal and regulatory requirements of different countries, such as
differing tax and labor laws,
- potential political and economic instability,
- the burdens of complying with a wide variety of
foreign laws, and
- the effects of potentially high local wage scales, diverse
employment regulations and other expenses.
Any of these factors or others not presently contemplated by us
could have a material adverse effect on our future international
operations.
- We have and may continue to have fluctuations in our quarterly
operating results. Our quarterly operating results have and, in
the future, may fluctuate significantly, depending on a variety of
factors, many of which are outside of our control. Factors that may
affect our quarterly results include:
- the demand for our products and services,
- the size, timing and timely fulfilment of orders for our
products and services,
- the level of product, price and service competition,
- changes in our sales incentive strategy, as well as sales
personnel changes,
- the mix of direct and indirect sales, product returns and
rebates,
- the extent that our direct mail programs achieve satisfactory
response rates,
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<PAGE>
- the efficiency of our telemarketing operations,
- our ability to keep our web sites operational and free of
technical difficulties and service interruptions,
- federal, state or local government regulation,
- our ability to upgrade and develop our systems and infrastructure
to accommodate growth,
- the success of our brand building and marketing campaigns, and
- general economic conditions and economic conditions specific to
the Internet and e- commerce industries.
- Our operating expenses and capital expenditures are expected to be
based in large part on our expectations of future revenues and the
expected costs associated with growing our new e- commerce
business and acquired companies. Therefore, if revenue levels are
below expectations, operating results are likely to be adversely
affected. Net income may be disproportionately affected by an
unanticipated decline in revenue for a particular quarter because a
relatively small amount of our expenses will vary with our revenue in
the short term. As a result, we believe that period-to-period
comparisons of our results of operations are not and will not
necessarily be meaningful and should not be relied upon as any
indication of future performance. Due to all of the foregoing factors,
it is likely that in some future quarter our operating results will be
below expectations.
- Our growth will depend on our ability to continue to develop our
brands. We believe that strengthening our brands will be critical
to achieving widespread acceptance of our goods and services.
Promoting and positioning our brands will depend largely on the
success of our marketing efforts and our ability to provide high
quality content, goods and services. In order to promote our brands,
we will need to increase our marketing budget and otherwise increase
our financial commitment to creating and maintaining brand loyalty
among users. Brand promotion activities may not yield increased
revenues and, even if they do, any increased revenues may not offset
the expenses we incur in building our brands. If we do attract new
users to our web sites or services, they may not conduct transactions
over our web sites or utilize our services on a regular basis. If we
fail to promote and maintain our brands or incur substantial expenses
in an unsuccessful attempt to promote and maintain our brands, our
business would be harmed.
OUR SERVICES AND PRODUCTS
E-COMMERCE SOLUTIONS
Our e-commerce interactive solutions services currently consist of:
- web site design, development and implementation,
- Internet, intranet and extranet backbone and computer network design
and implementation,
- web site-to-legacy systems integration,
- Internet and e-commerce customized software design,
- direct marketing and telemarketing services,
- web-enabled sales, customer and technical support services,
- fulfillment, and
- e-business building and consulting services.
Web Site Development.
We believe that, with the tremendous demands on companies to become more
efficient, companies must re-evaluate their traditional business models and
incorporate digital communications into their organizations' information systems
and manner of conducting business, in order to remain competitive. We help
companies interact effectively, both internally with employees and externally
with vendors, suppliers and customers, in this
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new business environment. We design and implement e-commerce solutions that
enhance our clients' core business, operations and communications.
Our web site development services are intended to:
- provide our clients with an on-line vehicle to communicate efficiently
with each client's target audience and the general public via an
exciting web site that will support, promote and raise an end
user/consumer's level of awareness of the client's products and
services,
- establish an attractive and functional on-line environment that will
provide a presence and awareness of the client's brand(s),
- attract new visitors to each client's web sites by expanding public
awareness of the site, and
- speak effectively to end users/consumers who look to our client's web
site as an informational resource.
In developing and delivering a successful project, we:
- integrate a sophisticated, feature-rich design that is intended to be
superior to the client's competition's web-site and transmit the
client's message in a compelling fashion,
- establish a scalable platform that anticipates additional content
areas and functionality which will enable our clients to strengthen
the end-user relationship by offering e-commerce, community building
vehicles and interactive opportunities,
- create custom graphics, backgrounds, typographical design and photo
montages to create a unique look and feel for the web site,
including the development of individually designed interfaces,
- establish interfaces that allow for the positioning of
"rich" media advertising,
- create customized viewer windows to support streaming video (real
video),
- create animation in various commonly-used formats to deliver movement
and visual excitement to the site,
- create web sites that are browser-aware and compatible with current
Netscape and Explorer versions,
- stress interactivity via use of pull-down menus, and contextualized
navigation where appropriate,
- provide customer support and retention enhancement programs through
our web-enabled multi-national, multi-lingual telemarketing programs,
- harness visitor's captured data for future marketing initiatives, and
- focus on managing the user experience at all times through careful and
consistent navigation.
We use a team-based approach in creating our solutions. A typical project
involves an account manager, a producer, one or more designers, and three or
more programmers. Our approach emphasizes client interaction with our web site
design staff. This process provides assurance that the web site design solution
meets the client's expectations. A typical project process consists of:
- IDENTIFYING AND CLARIFYING THE CLIENT'S NEEDS. We begin our web
site design by understanding the client's business and clarifying
the client's immediate and long term goals. During this phase, we also
assess the client's operating and technical environment. We review the
client's competitor's web sites. We also work with the client to
identify how the solution can be tailored to meet the interactive
needs of the client's brand. Once the client's objectives are
outlined, a strategic plan is formulated, including a definition of
how the success of the project will be assessed. We also establish the
project's scope and budget and create a detailed work plan and set of
milestones during this phase.
- ARCHITECTURE. We create the architecture of the solution for the
specific business problem to be addressed and the definition of the
functional, technical and creative requirements necessary to put
the solution into effect. We collaborate with the client to refine the
architecture of the solution. We typically construct a web site with a
template architecture in order to facilitate quick updates of content.
This enables our and the client's personnel to rapidly add or update
content as needed without the need for additional creative/graphic
development. Our web sites are designed to establish intelligent
linking throughout the projects such that an end user will rapidly
become
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engaged in interactivity with the client and be encouraged to
advance towards its product line. We deliver all completed pages with
HTML and source files to the server of the client's choice, while
allotting protected space on our server during development for
24/7/365 access and review. We include middleware programming
solutions, as needed, such as CGI and scripts using Perl, Java and
Active X, where necessary. We utilize industry standard development
tools such as Photoshop, Bbedit, Dreamweaver, Fireworks and other
digital construction tools as necessary. We consult with the client's
designated Internet service provider, or ISP, to manage traffic growth
and service build-out as the site expands with functionality and
commerce applications. We work with our clients in developing system
server requirements and can recommend our systems integration services
to the client. We often develop a prototype of the solution to test
the initial concept and its functionality.
- DESIGN. Once the structural foundation is established, we focus
on completing the interaction and interface design aspects of
the project. We develop the features of the project, refine the
technology architecture for the solution and conduct usability testing
to evaluate the performance of the solution. During this phase, we can
offer our clients a variety of services beyond the design of the web
site, including illustration, digital video and copywriting. By the
end of this phase, we deliver a functional prototype of the solution
and a detailed plan for its implementation.
- IMPLEMENTATION. The final web site is built and launched. If
necessary, we integrate the solution with the client's existing
information technology infrastructure. We employ the latest
development tools, such as Perl/CGI, Cold Fusion, Java, Shockwave and
full-blown multimedia. Our designs generally are compatible with both
Windows and Macintosh environments. As part of the final delivery
process, we perform quality assurance tests and ensure that the client
understands how to use and maintain the web site through client
training and maintenance documentation.
- ENHANCEMENT. After implementation of the solution, we monitor it for
a specified period of time and analyze how the solution performs.
- MAINTENANCE AND AFTER-SALES SUPPORT. We typically are requested by
our clients to provide updates, regular maintenance and other support
and consulting services to their web sites. In addition, we encourage
clients to continue to work with us to address their needs for the
next generation of the solution as new technologies are developed and
end-user's requirements evolve. At the client's option, we design a
marketing and promotion plan for the web site. We may be able to use
such opportunities to promote our call centers and our other
e-commerce services.
- CUSTOMER SERVICE. We offer to our clients the ability to install on
their web sites a direct link to real-time chat, audio and/or video
help provided by our multi-national, multi-lingual 24/7/365 call
centers, to facilitate our client's customers' satisfaction and
minimize aborted sales attempts.
We also offer a wide range of marketing services to build the client's
brand on-line, including:
- research and competitive analysis,
- strategic planning sessions,
- focus groups,
- e-commerce concept development,
- web site usage tracking and analysis,
- web site banners and interactive product advertising,
- search engine listings and maintenance,
- on-line advertisement placement and management,
- on-line product launch and product support,
- web site programming,
- multimedia presentations and interactive sales tools.
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In order to draw traffic to a client's web site, we typically:
- register the client with all major search engines, such as Yahoo,
Altavista, GoTo and Excite in the appropriate categories, including
client-supplied keywords,
- hard code various metatags, a hidden keyword that is recognized by the
programs that run search engines, into individual pages of the
client's site, and
- Create a policy of "link trading" with relevant sites, especially
with client's partners and affiliates.
Systems integration.
Through PWR Systems, we are an authorized dealer and VAR of computer and
digital communication equipment. In this connection, we also provide systems
integration services, including regional support in Internet, intranet and
extranet application and framework design, enterprise and work group
client/server design and optimization, relation or data base development, local
and wide area network and workgroup solutions.
We provide consulting services to our clients, particularly in the areas of
hardware and software selection, logical and physical system design, programming
implementation, education and training. As a systems integrator, we assume
overall project management responsibility. We generally bill for project work on
a time and materials basis. Our ability to undertake and successfully implement
major systems integration and other projects requires a wide range of technical
skills, such as logistical and physical design, implementation and training
support and technical expertise in computer hardware and peripheral equipment,
data bases, programming, productivity tools, communications, and system design
and maintenance.
We have substantial experience servicing the unique needs of advertising,
publishing and new media companies. The principal products used in our systems
integration projects include third-party computer hardware and software. We are
authorized dealers and/or resellers for a number of manufacturers of high
quality computer and network equipment, including Apple Computer, Cisco Systems,
Compaq Computer, IBM, Silicon Graphics, NEC, Hewlett Packard, Intergraph, 3Com,
Micronet and Microtech.
As an interactive solutions integrator, we concentrate our marketing
efforts on advanced systems, peripherals, and communications equipment. We
develop our accounts through a process that focuses on our commitment to use the
full range of our resources, products, services and expertise. We constantly
evaluate new products on the basis of price, performance, reliability, customer
support, and stability of the vendor. We establish an on-going relationship with
our clients so that we are continually involved in their changing business
needs. By maintaining a supportive presence, we can then assist in the
decision-making and planning processes, and make sure that our customer receives
not only current value, but long-term benefits as well. To achieve the most
effective systems configuration and satisfy our clients' highly demanding needs,
our staff is involved in every stage of the purchase and implementation of our
clients' integration, from analyzing and advising hardware and software
solutions through installation, training, on-line and telephone support and
systems maintenance.
We also operate a web site, at store.PWRSystems.com, for the on-line sale
of computer and digital communication equipment which we are authorized to sell.
This web site is targeted to our regular systems integration customers and the
B2B market.
With connectivity and client/server technology to store, retrieve and
present information becoming a critical part of any companies' strategy to
attain a competitive advantage, we believe that we can supply the necessary
expertise in building and supporting advanced systems which typically can
include hundreds, if not thousands, of pieces of equipment, including multiple
central processing units, or CPUs, operating systems and wiring topologies. Our
technical staff includes experts with experience with Novell, Windows NT, Apple
OS X, Linux and UNIX operating systems, as well as all major hardware
manufacturers. This enables us to provide our clients with an objective,
long-term technology plan based on their individual needs. We reduce the expense
and frustration of dealing with multiple vendors by consolidating purchasing
activity.
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Our hardware sales include the warranty provided by the manufacturers of
the products sold. We can also provide options on extended warranties and
service contracts available from most manufacturers. Our field technicians have
authorizations and expertise in all major industry products we sell. We provide
to our systems integration customers access to our other interactive solutions
services and team with strategic technical support partners, where necessary, to
enable us to provide our clients complete e-commerce solutions.
We typically sell our products on a net 30 days basis. We can also refer
our clients to several third party leasing companies with whom we have on-going
relationships.
We also can provide customer training and education to assist our clients
in reaching higher productivity and achieving greater returns on their
investments in computer products. We offer convenient, hands-on training with
major application packages running on IBM-compatible and Apple hardware. Our
classes are taught by working professionals retained by us on a consultation
basis who are specifically trained in desktop publishing and corporate
computing.
We also maintain a state-of-the-art digital studio at PWR's office in
Bohemia, New York. We constantly test new products and technologies available
from our various vendors in the digital video, digital audio, 3D animation and
multimedia areas in order to make the most up-to-date and appropriate
recommendations of computer and digital communication equipment to our clients.
As a systems integrator, we consult with our clients to ascertain their
short- and long-term computer network and digital communication demands. We
attempt to learn their business and information management needs, the
environments in which they operate and their internal maintenance and support
capabilities. We then propose a customized solution to their requirements. Among
our other services, we can provide asset management. This includes conducting an
inventory of all hardware and software and verifying that all licenses to such
hardware and software are current.
We also offer web-hosting and co-location services to our clients, as
necessary. As a web-host, we provide and maintain dedicated web servers and
provide content and infrastructure. By providing co-location services, we permit
the client to use our own computer network for the gathering, storage and
retrieval of the client's data.
We have not experienced any material difficulties or delays in meeting
customer shipments. In cases where we are unable to obtain equipment directly
from the manufacturer, through our sourcing network we attempt to locate
equipment from other systems integrators and resellers. Where we are still
unable to obtain equipment, we suggest alternative equipment to our clients for
use in their integration projects.
We are not dependent on a single purchasing or product source. Our sourcing
network is intended to provide our clients with constrained and allocated
product delivery and avoid customer complaints of erratic delivery. Typically,
we configure customer orders in-house prior to delivery to the customer.
For 1999, two of PWR Systems' vendors accounted for an aggregate of
approximately 48% of PWR Systems' purchases.
While we believe our sourcing network permits us to fill client orders on a
timely basis, the loss of any license or reseller agreement with a significant
manufacturer or the termination of relationship with a significant source of
computer equipment could interrupt our integration services business and have a
material adverse impact on us.
Sales, customer and technical support and marketing.
We believe that e-commerce companies cannot function solely by having a web
site and backbone. We further believe that, in order to effectively compete and
complete sales transactions on their web sites and create customer loyalty,
e-commerce companies need to have available a human bridge, or interface,
between the e-seller and its customer. This human interface is intended to
assist in completing the transaction, including taking the
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customers' credit card number for those customers who are insecure about
providing the number over the Internet, as well as giving immediate, or
real-time, answers to any questions the customer may have.
We believe that we are capable of providing this human interface customer
service function through our web-enabled call centers in Nashua, New Hampshire,
Nottingham, United Kingdom and Aachen, Germany. Through these centers we can
provide multiple multi-lingual 24/7/365 chat, audio, video, customer service and
technical support over the Internet. We have licensed certain technology which
permits us to communicate with a customer, on a real-time basis, by computer
chat, audio and/or video functions, depending on the capabilities of the
customer's computer. We believe that this service is a key difference between us
and our e-services competitors.
Acquisitions.
For acquisitions, we have frequently used a standardized transaction
structure that includes a purchase price adjustment or bonus feature to provide
target company management with an incentive to improve and expand their
organizations. We also generally grant stock options to employees of a target
company who continue their employment with us to provide them with an incentive
to contribute to the success of our overall organization.
We identify those firms that meet our acquisition criteria, engage in a
series of meetings and due diligence activities with each candidate to explore
whether the candidate meets our criteria for growth potential and operating
strategy, and complete the acquisition of attractive candidates. We stress to
each desired candidate the advantages of merging with us, including the depth
and breadth of services required by many potential clients; the client
recognition and acceptance of our interactive solutions brands; and additional
funding required to pursue large and profitable long-term client opportunities.
We believe that there are numerous potential acquisition candidates that
satisfy our acquisition criteria. We are currently discussing, on a non-binding
basis, the acquisitions of several companies. If, after due diligence review and
negotiation, such companies can be acquired on a basis considered fair to us and
our stockholders, we may proceed with such acquisitions. We expect most of our
future acquisition transactions will include the issuance of additional shares
of our common stock. To penetrate foreign markets, we may use joint ventures as
well as acquisitions, to capitalize on a foreign partner's local knowledge and
reputation as well as our interactive solutions brands and technical, marketing
and administrative resources. Our acquisition strategy involves a number of
risks and uncertainties, and we cannot be sure that we will be able to identify
suitable acquisition candidates, acquire such companies on acceptable terms or
integrate their operations successfully with ours. As we issue stock to complete
future acquisitions, our existing stockholders experience ownership dilution. In
addition, to the extent we choose to pay cash consideration for such
acquisitions, we may be required to obtain additional financing. We cannot be
sure that such financing will be available on favorable terms, if at all.
We also face a number of challenges that pose risks or could hurt our
business as we build up our international operations, such as:
- unexpected changes in regulatory requirements that could raise the
cost of doing business, prevent doing business, or restrict our
ability to remove funds from a country,
- economic downturns more sudden and dramatic than those generally
occurring in the U.S.,
- changes in currency exchange rates, which could dramatically increase
the price of acquisitions or significantly decrease the profitability
of operations where payment is in local currency,
- difficulties in staffing and managing foreign operations,
- difficulties in using equity incentives for employees, which we rely
on heavily but which are often less understood outside the U.S.,
- differences in business customs,
- longer payment cycles, and
- political instability and the risk of military conflict.
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SOFTWARE PRODUCTS
Most of our software products are visual communication tools for the
corporate, small office/home office and consumer markets. Our software products
are designed to allow the user to improve the visual and graphical appeal, as
well as the overall effectiveness, of documents and digital images. Our software
products include application programs primarily designed for:
- desktop publishing,
- web publishing,
- presentation graphics,
- digital imaging,
- drawing/graphics,
- charting, and
- other similar applications.
We currently derive substantially all of our software revenues from
products sold directly to end-users by our direct mail and telemarketing centers
and, to a lesser extent, through retailers, distributors and corporate
purchasers, by our internal sales force and independent sales representatives.
Through VisualCities.com and our other web sites, we also market and sell our
products over the Internet. Approximately 91% of our net sales for the year
ended December 31, 1999 were generated through our direct sales and
telemarketing efforts. Our international sales for the year ended December 31,
1999 represented approximately 66% of our total sales.
Our product development staff produces the master diskettes, CD-ROMs and
user manuals for our proprietary software. We generally have third party
contractors print and assemble CD-ROM discs, diskettes, manuals, inserts and
boxes in which our products are shipped. We have multiple sources for major
components of our products and do not rely on any one principal supplier. We
have not experienced any material delays in production or assembly. To date, we
have not experienced any material difficulties or delays in production of our
software products and related documentation.
We generally purchase computer hardware products such as mouse pens and
digital cameras from third parties. From time to time, supplies of these
products have not been sufficient to meet customer demand, primarily as a result
of manufacturing difficulties, our just-in-time inventory policy and our less
than optimal amounts of letter of credit facilities or other resources
sufficient to finance such purchases.
VISUALCITIES.COM
Our VisualCities.com web site is an on-line destination targeted to the
visual communication community. This web site offers information, content,
membership benefits, products and services to users in this targeted market. We
intend to utilize this web site to sell visual communications products,
including both our software products and software and hardware products
manufactured by third parties. We also intend to create a gathering place and
e-community for individuals with interest in and needs for visual communication
tools. We believe that the market for our VisualCities.com web site includes the
existing customers of our software products.
We intend to attract users to VisualCities.com, induce such users into
becoming members of the web site community and promote commercial transactions
over the web site by leveraging our:
- large installed base of software customers,
- direct marketing capabilities, and
- international brand recognition of our Harvard Graphics and Serif
brands.
We intend to ultimately offer to the VisualCities.com user focused content
within a studio-based format reflecting seven visual communications markets:
- digital imaging,
- animation,
- image marketplace/art gallery,
- drawing,
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- presentation graphics,
- desktop publishing, and
- web publishing.
Four of these studios are currently operational at VisualCities.com. We expect
this web site to achieve full functionality in early 2001.
We believe that increased membership will result in a high level of traffic
at the web site which may result in increasing our revenues. We envision that
our VisualCities.com web site will generate revenue from a number of sources,
including :
- the sale of our own and third party products,
- advertising,
- the brokerage of images, including photos, digital art, clip-art and
traditional media art, as well as other content,
- links to other web sites,
- other ancillary services related to the market for visual
communication tools, and
- with the anticipated broadening of the band-width of the Internet,
the capacity to transfer data over the Internet, as an application
service provider, or ASP, of software programs.
An ASP can be broadly defined as an online community dedicated to
outsourcing computer software, as a service, via the Internet. Under this model,
the software resides on a server owned and operated by an intermediary company.
We believe that the ASP model will become a leading method for the use of
software because the end-user can use the software with nothing more than a
personal computer and a browser. With an ASP application, installation,
training, support and system integration issues disappear along with the heavy
financial burden of buying and maintaining software.
System failures could harm our business. Substantially all of our computer
hardware for operating our web sites and service centers currently is located at
our Nashua, New Hampshire, Nottingham, England, and Aachen, Germany facilities
and at the offices of one of our vendors. Despite any precautions we may take,
our systems and operations may be vulnerable to damage or interruption from
floods, fires, power loss, telecommunication failures and similar events. They
are also subject to break-ins, sabotage, intentional acts of vandalism and
similar misconduct. Although we have fully redundant systems, we do not have, at
this time, a formal disaster recovery plan or alternative providers of hosting
services, and we do not carry business interruption insurance to compensate us
for losses that may occur. Any damage to or failure of our systems could result
in interruptions in our web sites or service centers. Interruptions in our web
sites would reduce our revenues, and our future revenues will be harmed if our
users believe that our systems are unreliable.
Unauthorized break-ins to our systems could harm our business. Our servers
are vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to complete user transactions. In addition, unauthorized persons may
improperly access our data. We may experience an unauthorized break-in by a
"hacker" who could cause damage to or change our system or take confidential
information. Any actions like these could harm us. Actions like these may be
very expensive to remedy and could damage our reputation and discourage new and
existing users from visiting our web sites.
The enactment of new laws and the application of existing laws to
transactions over the Internet could affect the way our clients conduct their
businesses and rely on the Internet, which may have a material adverse effect on
our operating results and financial position. Today, there are relatively few
laws specifically directed towards web site providers. However, due to the
increasing popularity and use of the Internet, it is possible that laws and
regulations will be adopted with respect to the Internet and web site providers.
These laws and regulations could cover issues such as:
- user privacy,
- freedom of expression,
- pricing,
- fraud,
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- content,
- quality of products and services,
- taxation,
- advertising,
- intellectual property rights,
- obscenity, and
- information security.
The vast majority of laws relating to these issues were adopted prior to
the advent of the Internet and related technologies and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies. Those laws that do reference the Internet generally have not yet
been interpreted by the courts and their applicability and reach are therefore
uncertain.
Several states have proposed legislation that would limit the uses of
personal user information gathered online or require web site providers to
establish privacy policies. The Federal Trade Commission also has recently
settled a proceeding with one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues could directly affect the way we do business or could create uncertainty
in the marketplace. This could reduce demand for our services, increase the cost
of doing business as a result of litigation costs or increased service delivery
costs, or otherwise harm our business. In addition, because our web sites are
accessible worldwide, foreign jurisdictions may claim that we are required to
comply with their laws. As we continue to expand our international activities,
we will become obligated to comply with these laws. Compliance may be more
costly or may require us to change our business practices or restrict our
service offerings relative to those in the United States. Our failure to comply
with foreign laws could subject us to penalties ranging from fines to bans on
our ability to conduct business on our web sites.
SOFTWARE DEVELOPMENT
The personal computer software industry is characterized by rapid
technological change, which requires a continuing high level of expenditures for
the enhancement of existing products as well as development, licensing or
acquisition of new products. Our current product development activities include
enhancing and updating our present software packages, including preparations for
making our Serif and Harvard Graphics products available as server-based
applications on the Internet through VisualCities.com, as well as the continued
development of our VisualCities.com web site.
Our Serif technology includes two advanced code bases, desktop publishing
and drawing, which can continue to be expanded as user requirements evolve. We
have focused our research and development resources on expanding our Serif and
Harvard Graphics technology, as well as on our intended development of
VisualCities.com and other Internet technologies and products.
We intend to acquire additional technology through a combination of
internal development, licensing, purchasing and strategic alliances. There can
be no assurance that our software product development efforts or software
product introductions will result in commercially successful products. Our
software revenues are based on a combination of products developed internally,
acquired products and licensed products. We intend to continue a flexible
approach to our development, acquisition and release of new software products
and technologies. We believe this flexible approach is necessary because the
rapid changes in the software industry require ever shorter development cycles
and ever higher levels of product quality and functionality.
We developed VisualCities.com internally and with outside consultants. We
transitioned the further development and maintenance of VisualCities.com to our
Renaissance Multimedia subsidiary.
We spent approximately $1,027,000 in 1999 and $1,266,000 in 1998 for
software product development and enhancement activities. These expenditures
represented approximately 5.2% of our total net revenues for 1999
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and 6.9% of our total net revenues for 1998. In 1999, we released a total of
seventeen of our own software products.
The shortened product life cycles of competitive software products may
adversely affect our product life cycles and development costs, as well as our
revenues. From time to time we or our competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten the
life cycles of our existing products. Such announcements of currently planned or
other new products may cause customers to defer purchasing our existing
products.
Rapid technological changes could cause delays in our introduction of new
products and these delays may reduce our revenues. The software market is
characterized by:
- ongoing technological developments,
- evolving industry standards,
- frequent new product introductions, and
- rapid changes in customer requirements and preferences.
The introduction of products with new technologies and the emergence of new
industry standards and practices can rapidly render existing products obsolete
and unmarketable. In the past, we have experienced delays in software
development. We may experience delays in connection with our current and future
product development activities. Further, our new products and product
enhancements may not adequately meet the requirements of the marketplace nor
achieve market acceptance. Delays in the commencement of commercial shipments of
new products or enhancements may result in customer dissatisfaction and delays
or losses in product revenues.
Product defects could delay or prevent market acceptance of new or upgraded
products. Our software products may contain undetected flaws or failures when
first released. These flaws or failures may result in loss of or delay in market
acceptance.
Our software development projects may not have the intended results. We
have a number of development projects ongoing or under consideration, such as
Serif PagePlus7, a possible new version of our Harvard Graphics product and the
continued development of our VisualCities.com web site. These development
projects:
- may not be completed successfully, on time or within budget,
- may not include features required to achieve market acceptance, and
- may not result in enhancements to our products that keep pace with
broadening market requirements.
SALES AND MARKETING
E-COMMERCE SOLUTIONS
Our e-commerce solutions services marketing efforts are expected to focus
on strengthening our brand names and enhancing our reputation as a creative
provider of e-commerce and digital communications solutions. We believe that the
breadth of our services and our brand names will provide us with a competitive
advantage over those professional information technology services firms whose
brands may not be as well known or may not convey the same focused message of
creative digital communications solutions.
Our brand development programs are designed to reinforce the message that
we are an international company with a local presence that can provide
integrated, full-service digital communication and e-commerce service offerings.
We also intend to increase our advertising in an effort to expand the
recognition of our brand names.
Currently, our account managers are responsible for marketing and sales of
our web site design services. This approach provides us with a flexible sales
resource. We do not have a formal marketing or sales force for our web site
design business. We intend to cross train the marketing and sales
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staffs of our operating subsidiaries and to further develop an integrated sales
and marketing force. We intend the marketing and sales force primarily to
develop and prioritize new business leads and to filter incoming contacts from
prospective clients.
We also sponsor the Silicon Alley Breakfast Club as a means to network with
professionals in the New York City-based web site design industry and to keep
abreast of new developments in the industry.
Our systems integration sales and marketing efforts are coordinated by our
account managers. Historically, we have conducted limited advertising of our
networking products and integration services. We believe that our growth as a
systems integrator has been dependent on referrals from former and current
customers and vendors. We expect to increase the marketing of our networking
products and integration services.
Our integration services' sales engineers typically meet with a new client
to discuss their business, legacy systems and goals. A legacy system consists of
the current computer equipment and any network the client is using at the time
it hires us. We will then do a site survey to understand the environment in
which we will build the client's integration solution. We also do a customer
assessment so as to understand the client's philosophy towards its integration
needs, the extent to which cost or quality are factors, whether expansion or
upgrading of the system is planned and whether the client will only accept a
"cutting edge" solution. We then design the appropriate integration solution,
including identifying all computer and digital communication equipment and
software and present the customer with a proposed purchase order. Upon
acceptance, equipment is ordered and scheduling of the installation is planned.
SOFTWARE PRODUCTS
Our software products are sold primarily through direct marketing,
telemarketing, retail, corporate, original equipment manufacturer and Internet
sales channels. Direct sales, which accounted for approximately 91% of our total
net revenues for 1999 and 84% of our total net revenues for 1998, are generated
primarily by inbound and outbound telemarketing operations in the United States
and United Kingdom. Corporate sales are comprised of both individual product
sales as well as volume license sales. Most of our retail sales are made on a
two-step basis with the initial sales being made to distributors who then sell
the products to retail chains. Consistent with industry trends, our retail sales
of software products have been declining significantly. We also distribute our
products through OEMs on a bundled or value-added basis. In addition, we sell
our products through VisualCities.com and have established separate on-line
software stores at www.harvardgraphics.com and www.serif.com from which our
products may be purchased. We expect to continue to expand our software and
hardware distribution over the Internet.
We utilize our telemarketing operations in conjunction with our direct mail
operations to maximize direct sales to existing and new end user customers.
These mailings and direct response advertisements originate from our offices in
Nashua, New Hampshire, Nottingham, England and Aachen, Germany and are handled
by our inbound and outbound telemarketers at such locations. These mailings and
advertisements are varied and tested to attempt to maximize response rates and
profitability. We maintain a list of our registered customers and send periodic
mailings to them in an effort to sell them upgrade versions and new products.
Our advertising programs for our product lines are designed to increase
corporate and product brand awareness, as well as to increase sales. Our
advertising targets new customers, our registered users and, with competitive
upgrade promotions, our competitors' customers. We advertise primarily through
promotions to support distributors' and resellers' sales efforts, including:
- distributor/reseller advertising programs,
- rebates,
- training, and
- price promotions.
We engage in joint promotional activities with computer hardware and other
manufacturers. We also participate in trade shows.
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Our products continue to derive substantial revenues from foreign sales. We
translate a number of our products, including packaging, documentation,
software, and promotional materials, for international markets. These
translations are generally done by outside contractors, or by our local sales
and marketing agents. Advertising and promotional programs are customized for
local markets where necessary. International sales include localized versions of
selected products, as well as the English language versions of our products
throughout the United Kingdom, Europe, Latin America, South America and the
Asia/Pacific region. Localized versions include:
- German,
- French,
- Spanish,
- Italian,
- Portuguese, and
- Dutch.
Approximately 66% of our total net revenues for 1999 and 54% of our total
net revenues for 1998 came from sales made outside of the United States. We
expect to continue to sell internationally and invoice in foreign currencies.
Accordingly, we are subject to risks associated with exchange rate fluctuations.
We have a general return policy for our North American resellers and
distributors whereby they may return any products previously purchased from us,
provided that the aggregate purchase price for such returned products does not
exceed 10% of the reseller's or distributor's net purchases for the prior
quarter. In addition to this return allowance, our North American distributors
and resellers may generally exchange any discontinued products within ninety
days of notification of discontinuation for products of equal or greater value.
For our international distributors and resellers, the general return policy is
the same as for North American resellers and distributors, except that returns
with respect to sales in a quarter must be completed within the first month of
the subsequent quarter. For our international distributors and resellers, the
policy for the exchange of obsolete products generally allows returns within
thirty days after the announcement of a product's obsolescence, provided that
the product was shipped within thirty days prior to the announcement. However,
to maintain good customer relations, we may accept returns in excess of those
allowed under our general policy.
We typically ship software products within several days after receipt of
orders, which is customary in the personal computer applications software
business. We also attempt to ship our hardware products within several days
after receipt of orders; however, when supplies of such products are not in
stock, delays of up to several weeks may occur. We had a backlog of
approximately $500,000 as of December 31, 1999, primarily relating to digital
cameras. We had a backlog of $389,000 as of December 31, 1998.
Our dependence on retailers, distributors and sales representatives may
adversely affect our software sales and cash flows. Our software customers are
not contractually required to make future purchases of our products and could
discontinue carrying or purchasing our products, at any time and for any reason.
Retailers and distributors generally are in a strong position to negotiate
favorable terms of sale, including price discounts and product return policies.
Retailers also often require software publishers to pay fees in exchange for
preferred shelf space. Further, resellers may give higher priority to products
other than ours, thus reducing their efforts to sell our products. We may not be
able to increase or sustain the current amount of our retail shelf space and, as
a result, our operating results could be adversely affected.
VISUAL CITIES.COM
We expect to market our VisualCities.com web site initially to the existing
users of our software products through direct marketing efforts. We may also
utilize other interactive marketing and advertising efforts to expand the
traffic and membership of Visualcities.com.
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CUSTOMER CONCENTRATION AND CREDIT RISK
No customer accounted for more than 10% of out total net sales for 1999. We
had one customer which accounted for approximately 13% of our total net revenues
for 1998. This same customer accounted for approximately 36% of our net accounts
receivable at December 31, 1998. The loss of any significant customer, a
significant decrease in product shipments to one or more of them or an inability
to collect receivables from one or more of them could adversely affect our
business, operating results and financial condition.
Product returns and difficulties in the collection of accounts receivable
could result in reductions in our cash flows. Our sales generally are made on
unsecured credit terms which may vary substantially. Therefore, a default in
payment on a significant scale could materially adversely affect our business,
results of operations and financial condition.
CUSTOMER SUPPORT AND SERVICE
E-COMMERCE SOLUTIONS
We believe that customer support services, whether rendered before or after
the initial sale, are a key to attaining customer satisfaction. This
satisfaction may result in additional revenues from the customer in the future,
as well as referrals by the customers to potential new clients. Customer
satisfaction with our integration services also may result in our ability to
promote our web site design and Web-enabled support services to the client.
Consultation with the client's department managers and end-user groups in
conjunction with our ongoing technical briefings and newsletters are part of our
strategy to enable our clients to reach their productivity goals.
In our systems integration business, we maintain a limited inventory of
hardware and software products and typically purchase products from our
third-party vendors only after receipt of a client order. However, we have
expanded our inventory of key spare parts to assure our clients of delivery of
timely and quality service. We also use our network of sources to obtain parts
on prompt, as needed basis. We use only factory authorized parts in our service
operations.
As an authorized dealer of many of the highest quality computer equipment
manufacturers, we have the experience and training to sell and service the
hardware equipment constituting an integration project and any enhancements and
upgrades our customers may require. In addition, we have strategic alliances
with third parties to supplement our own internal resources in the areas of data
security application programming.
We have Web-enabled our three call centers and telemarketing operations
utilizing CosmoCall Universe, an Internet protocol-based, multimedia contact
center technology, to provide multi-lingual, online customer sales and support
services to Internet businesses. Key features include live, text-based "chat,"
voice and video over the Internet, and e-mail communications between our
specially trained employees and our clients' customers. Additional capabilities
facilitated by CosmoCall Universe, which was cited "Product of the Year" for
1999 by Internet Telephony and Communications Solutions magazines, include
seamless integration with a client's customer relationship management software,
real-time reporting and online, collaborative browsing.
SOFTWARE
We provide free technical support for our software and hardware products
directly in the United States, United Kingdom and Germany for a period of thirty
days from either the first call to our technical support centers from the
customer or from receipt of the customer's product registration card. After this
initial period, technical support is available for purchase under a variety of
value-added support programs. However, to maintain good customer relations, we
may provide free technical support in excess of the initial period.
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VISUAL CITIES.COM
We utilize our Web-enabled call centers to provide real-time customer
service to VisualCities.com users, as we provide to our e-commerce interactive
solutions customers.
COMPETITION
E-COMMERCE SOLUTIONS
The e-commerce services market has grown dramatically in recent years as a
result of the increasing use of computers and digital communication technology
and the Internet by businesses for communication, marketing and information
dissemination to their employees, customers, vendors and suppliers. Different
e-commerce service providers focus on different types of services. For example,
Internet content providers, consulting and advertising agencies and
telecommunications companies offer very different services. This factor, along
with the rapid pace of technological change, makes the e-commerce services
market intensely competitive and rapidly evolving. We expect competition to
persist and intensify in the future.
We anticipate that our competitors in our e-commerce solutions business
will include:
- Internet service firms, such as Scient, Viant, Agency.com, Icon
Medialab, iXL, Modem Media, Poppe Tyson, Organic Online, Pixelpark,
Proxicom, Razorfish, Rare Medium, Xceed Inc. and USWeb/CKS;
- technology consulting firms, such as Diamond Technology Partners and
Metzler Group;
- technology integrators, such as Andersen Consulting, Cambridge
Technology Partners, Cap Gemini, EDS, IBM, Sapient and WM-Data;
- strategic consulting firms, such as Bain & Company, Booz-Allen &
Hamilton, Boston Consulting Group and McKinsey & Company; and
- in-house information technology, marketing and design service
departments of our potential clients.
We can also expect competition in our call center service business from
large call center service providers and any in-house service centers of our
potential clients.
Compared to us, many of these competitors have:
- longer operating histories,
- larger installed client bases,
- longer relationships with clients,
- greater brand or namerecognition, and
- significantly greater financial, technical, marketing and public
relations resources.
Although only a few of these competitors have offered a package of
solutions as extensive as our portfolio of services, several have announced
their intention to offer a broader range of solutions. Furthermore, greater
resources may enable a competitor to respond more quickly than we can to new or
emerging technologies and changes in customer requirements and to devote greater
resources to the development, promotion and sale of its products and services
than we can to our products and services. In addition, the lack of any
significant barriers to entry into this market permits new market entrants,
which may further intensify competition.
We believe that the principal competitive factors in our e-commerce
solutions markets, in relative importance, are:
- the ability to attract and retain professionals,
- technical knowledge and creative skills,
- brand recognition and reputation,
- reliability of the delivered solutions,
- client service, and
- price.
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SOFTWARE
The market for visual communications and business productivity software is
highly competitive and subject to rapid technological change. Many of our
current and potential competitors possess significantly greater financial,
technical and marketing resources, greater name recognition and a larger
customer base than we have. In addition, any of these competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, as well as to devote greater resources to the development,
promotion and sale of their products than we can. Furthermore, because there are
relatively low barriers to entry in the software industry, we expect additional
competition from other established and emerging companies, which may choose to
enter the market by developing products that compete with those offered by us or
by acquiring companies, businesses, products or product lines that compete with
us. It is also possible that competitors may enter into alliances and rapidly
acquire significant market share. We also believe that competition will increase
as a result of software industry consolidation. There can be no assurance our
current or potential competitors will not develop or acquire products comparable
or superior to those developed by us, combine or merge to form significant
competitors, or adapt more quickly than us to new technologies, evolving
industry trends and changing customer requirements. Increased competition could
result in further price reductions, reduced margins or loss of market share, any
of which could materially and adversely affect our business, operating results
and financial condition. There can be no assurance that we will be able to
compete successfully against current and future competitors or that competitive
pressures faced by us will not have a material adverse effect on our business,
operating results and financial condition. If we are unable to compete
successfully against current and future competitors, our business, operating
results and financial condition would be materially and adversely affected.
Some of our competitors sell "bundles" or "suites" of products which
include products that directly compete with our products and which are bundled
with other office software programs by the same or multiple competitors. These
suite products are sold at an all-inclusive price. Additionally, application
software is increasingly provided as part of the operating system, or bundled
and pre-loaded into new computers. The price for a stand-alone or pre-loaded
bundle or suite of software is typically significantly less than separately
purchased applications, and many end users are likely to prefer the bundle or
suite over a more expensive combination of other individually purchased
applications, even if the latter applications offer superior performance or
features. These factors have resulted in and are expected to continue to cause
significant downward pressures on average selling prices for our products. There
is no assurance that we will be able to adopt strategies to compete successfully
in this environment.
The market for our software products is increasingly competitive as a
result of:
- ongoing technological developments,
- licensing of technology between companies,
- cross and collateral marketing of products by two or more companies,
- alliances between companies,
- joint marketing campaigns,
- rapid changes in customer requirements and increasing customerdemands,
and changes in operating systems.
We believe that the principal competitive factors in the corporate, SOHO
and consumer software markets include:
- pricing (which includes individual product pricing, standard and
competitive upgrade pricing, licensing and volume discounting),
- product functionality,
- ease-of-use,
- bundling in suites of related products which could render competitive
products to be considered "free,"
- distribution through existing and new channels, and
- brand name recognition.
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As a result, we believe that our success in this market depends upon our
ability to continue to:
- enhance our existing and future products,
- correctly identify and enter new markets,
- effectively market our current and future products,
- expand our existing distribution channels and develop new distribution
channels, including distribution over the Internet,
- timely and efficiently acquire, license or develop and introduce new
products that utilize new technologies, and
- respond to new demands of the market.
To the extent one or more of our competitors introduce products that better
address market requirements, our business could be adversely affected. We may
not be successful in timely developing and marketing enhancements to our
existing products or future products. Also, our existing and new products may
not adequately address the changing needs of the market. If we are unable to
timely develop and introduce new products or enhance existing products, our
business and results of operations could be materially and adversely affected.
Based on product lines and price points, we regard Microsoft Corporation,
Symantec Corporation, Corel Corporation, Lotus Development Corporation, Adobe
Systems, The Learning Company, Micrografix, Fractile, Visio, Metatools,
Deltapoint and Macromedia as competitors to our software business. The dominant
position of Microsoft in the personal computer operating system and application
program market place provides it with a range of competitive advantages,
including the ability to determine the direction of future operating systems and
to leverage its strength in one or more product areas to achieve a dominant
position in new markets. This position may enable Microsoft to increase its
market position even with respect to products having superior performance, price
and ease-of-use features. Microsoft's ability to offer corporate and SOHO
productivity software, to bundle software, to provide incentives to customers to
purchase certain products in order to obtain favorable sales terms or necessary
compatibility or information with respect to other products, and to pre-load
such bundled software on new computers, may significantly inhibit our ability to
maintain or expand our business. In addition, as Microsoft or other companies
create new operating systems and applications, there can be no assurance that we
will be able to ensure that our products will be compatible therewith. The
introduction of upgrades to operating systems or the introduction of new
operating systems and standardized software by Microsoft and others, over which
we have no control, may adversely affect our ability to upgrade our own
products, and may cause reduction in sales of our products.
We believe that competition will continue to intensify in the future and
that new product introductions, further price reductions, strategic alliances
and other actions by competitors could materially and adversely affect our
competitive position.
VISUALCITIES.COM
We believe that our VisualCities.com web site competes with web sites such
as:
- dtp.com,
- arttoday.com, and
- other web sites that offer products and services for visual
communications users.
However, we believe that few, if any, of our competitors offer as wide a variety
of visual communication content, products and services, as we offer or expect to
offer on our VisualCities.com web site.
Many current and potential competitors to VisualCities.com possess
significantly greater financial, technical and marketing resources, greater name
recognition and a larger member base than VisualCities.com. In addition, any of
these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, as well as to devote greater
resources to the development and promotion of their web sites than we can.
Furthermore, because there are relatively low barriers for entry into the
Internet e-commerce industry, we expect additional competition from other
established and emerging web site and visual communication software companies,
which may choose to enter the market by launching web sites that compete with
VisualCities.com, by acquiring companies, businesses, and web sites that compete
with VisualCities.com or by
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expanding their businesses or web sites to offer similar products and
services as are offered on VisualCities.com. We also believe that competition
will increase as a result of the anticipated expansion of the use of the
Internet, both domestically and internationally. Increased competition could
result in price reductions, reduced margins or loss of market share, any of
which could materially and adversely affect our business, operating results and
financial condition. There can be no assurance that we will be able to compete
successfully against current and future competitors or that competitive
pressures faced by us will not have a material adverse effect on our business,
operating results and financial condition. If we are unable to compete
successfully against current and future competitors, our business, operating
results and financial condition would be materially and adversely affected.
CUSTOMERS
E-COMMERCE SOLUTIONS
Our e-commerce solutions customers range from multi-national corporations
to small and medium size companies.
We have concentrated our web site design marketing efforts in the New York
and London metropolitan areas. Some of our web site design customers include:
- ADI Security Systems - Audiovox
- AT&T - Capital Vectors International
- Canon USA - Chase Manhattan Bank
- CIMA Laboratories - Essence Magazine
- Digital Equipment Corporation - Global Ministries
- First Alert - Loehmann's
- Golf Digest - Manhattan Bagel
- Loral Space & Communication - Merck
- MasterCard - New York Business Forums
- New England Journal of Medicine - Phillips Van-Heusen
- Price Waterhouse - Sara Lee Bakery
- Reckson Associates - Smithsonian Magazine
- Schering-Plough - Sprint Communications
- South Beach Beverage - Youngs Brewery
- Tishman Construction - The Harbour Club
- Justin Bell Racing - Cannons Health Club
- Hale Clinic - [email protected]
- Business Link - British Market Research
Association
We have historically focused our systems integration marketing efforts at
the entertainment, advertising, publishing and new media industries. Some of our
systems integration clients are:
- Sony Music - Viacom
- American Lawyer Media - MTV Networks
- Acclaim Entertainment - HBO
- Polo Ralph Lauren - DDB Worldwide
- Quick International - FCB Worldwide
- Simon and Schuster - PBS
- Comedy Central - RCA
- Martha Stewart Living
SOFTWARE
We believe that our Harvard, Serif and other software products are
currently used by over one million end-users, with approximately five million
historically installed users.
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GOVERNMENTAL REGULATION
E-COMMERCE SOLUTIONS
We believe that we do not need any government approval in connection with
our current e-commerce solutions operations. In addition, we know of no
governmental regulations, either federal, state or local, which currently
materially affect our e-commerce solutions operations or products, except for
those involving our telemarketing activities. Consequently, we have not incurred
any material costs nor have we experienced any material effects from compliance
with any governmental regulations with respect to our current e-commerce
solutions operations.
SOFTWARE
We believe that we do not need any government approval for production and
sale of our software products. In addition, we know of no governmental
regulations, either federal, state or local, which currently materially affect
our software operations or products. Furthermore, we know of no environmental
law, either federal, state or local, which would materially affect us or our
software products. Consequently, we have not incurred any material costs nor
have we experienced any material effects from compliance with any governmental
regulations or environmental laws with respect to our software operations.
VISUALCITIES.COM
Proposals to enact laws and regulations that apply to Internet
communication, commerce and advertising are becoming more prevalent. The
adoption of such laws could create uncertainty in Internet usage and reduce the
demand for all products and services offered on the Internet. Recently, Congress
enacted legislation regarding children's privacy on the Internet. It is possible
that additional federal, state and local laws and regulations may be proposed or
adopted with respect to the Internet, covering issues such as user privacy,
taxation, advertising, intellectual property rights and information security.
Several states have proposed legislation to limit the use of personal user
information gathered online or to require online services to establish privacy
policies. We believe that we are in full compliance with all current federal and
state privacy laws.
The Federal Trade Commission recently reported that it has no present
intention of proposing legislation to address online privacy in the near future,
and that it believes self-regulation to be the best course of action, except for
rules to implement the newly enacted laws governing the collection of personal
information from children and the confidentiality of such information. However,
the FTC has initiated action against at least one online service regarding the
manner in which personal information was collected from users and provided to
third parties. We believe that we are in full compliance with all FTC privacy
rules.
Legislation recently has been enacted in several states relating to the
transmission of unsolicited e-mail, a practice commonly referred to as
"spamming." The federal government and several other states, including New York,
are considering, or have considered, similar legislation. Although the
provisions of these current and contemplated laws vary, the laws generally limit
or prohibit both the transmission of unsolicited e-mails and the use of familiar
spamming techniques, such as the use of forged or fraudulent routing and header
information. Some states, including California, require that unsolicited e-mails
include opt-out instructions and that senders of such e- mails honor any opt-out
requests. We believe that our operations will not be affected by legislation
directed at spamming because we currently do not send unsolicited messages and
because our practices are intended to comply with all applicable laws and rules.
However, if we are required to change our business practices as a result of new
legislation, our business could suffer.
We do not know how our business may be affected by the application to the
Internet of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. Most of these laws were adopted before
the advent of the Internet and do not contemplate or address the unique issues
of the Internet and related technologies. Changes in laws intended
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to address such issues could create uncertainty in the Internet marketplace.
That uncertainty could reduce demand for our web sites and services and also
could increase the cost of our doing business.
In addition, because our services are available on the Internet in multiple
states and foreign countries, these states and countries may claim that we are
required to qualify to do business in their jurisdictions. Our failure to
qualify in any jurisdictions where we are required to do so could subject us to
taxes and penalties. It could also restrict our ability to enforce contracts in
those jurisdictions. The application of laws or regulations from jurisdictions
whose laws we do not believe currently apply to our business could have a
material adverse effect on us. We are currently not aware of any violations by
us of any laws or regulations of any states or other countries or of any
material qualification problems.
The European Union adopted a privacy directive that went into effect in
1998. Under this directive, business entities domiciled in member states of the
EU are limited with respect to the transactions in which they may engage with
business entities domiciled outside the EU, unless the non-EU entities are
domiciled in jurisdictions with privacy laws comparable to the EU privacy
directive. The United States presently does not have laws that satisfy the EU
privacy directive. Discussions between representatives of the EU and the United
States are ongoing and may lead to a number of safe harbor provisions which, if
adhered to, would allow business entities in the EU and the United States to
continue doing business without limitation. If these negotiations are not
successful and the EU begins enforcing the privacy directive, there could be a
material adverse effect on our Internet business.
We may be held liable for the unlawful activities of users on our web
sites. We may be unable to prevent unlawful activities by users of our web
sites, and we may be subject to civil or criminal liability for unlawful
activities carried out by users on our web sites. In order to reduce our
exposure to this liability, we may prohibit certain activities. We may in the
future implement other protective measures that could require us to spend
substantial resources and/or to reduce revenues by discontinuing certain service
offerings. Any costs incurred as a result of liability or asserted liability
relating to unlawful activities could harm our business.
We may be subject to liabilities associated with information disseminated
through our web sites. The law relating to the liability of web site operators
for information carried on or disseminated through their services is currently
unsettled. Claims could be made against web site providers under both United
States and foreign law for defamation, libel, invasion of privacy, negligence,
copyright or trademark infringement, or other theories based on the nature and
content of the materials disseminated through their web sites. Several private
lawsuits seeking to impose liability upon other web site providers currently are
pending. In addition, federal, state and foreign legislation has been proposed
that imposes liability for or prohibits the transmission over the Internet of
certain types of information. Our web sites feature chat rooms, which include
information from users regarding other users and other persons and entities.
Although all such discussions are generated by users and not by us, it is
possible that a claim of defamation or other injury could be made against us for
content posted on our web sites. Claims like these become more likely and have a
higher probability of success as we continue to expand internationally. If we
become liable for information provided by our users and carried on our web
sites, we could be harmed and we may be forced to implement new measures to
reduce our exposure to this liability. This may require us to expend substantial
resources and/or to discontinue certain service offerings. In addition, the
increased attention focused upon liability issues as a result of these lawsuits
and legislative proposals could harm our reputation or otherwise impact the
growth of our business. We carry liability insurance, but it may not be adequate
to fully compensate us if we become liable for information carried on or through
our web sites. Any costs incurred as a result of this liability or asserted
liability could harm our business.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
E-COMMERCE SOLUTIONS
Typically, all of our web site design services, including any designs and
copywriting we produce, are "works for hire" and belong exclusively to the
client for whom we provided the services to the extent permissible under Federal
copyright laws.
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We have licensed certain web-enabled call center technology which enables
our call center operators to provide real time chat, audio and/or video
assistance to our customers and customers of third parties who retain us to
provide customer service to their Internet customers.
Our dependence on third party licenses could have adverse affects. We rely
on certain software, technology and content that we license or have licensed
from third parties to perform key functions. These third-party licenses may not
continue to be available to us on commercially reasonable terms. Also, the
licensed software, technology and content may not be appropriately supported,
maintained or enhanced by the licensors such that the license would not continue
to provide the necessary commercial benefits to us. In addition, we may not be
able to license additional software, technology and content on terms
advantageous to us. The loss of or inability to obtain or replace licenses to,
or inability to support, maintain and enhance, any of such licensed software,
could result in increased costs, including the expense of internally developing
the required software, technology and/or content, as well as delays or
reductions in product shipments.
SOFTWARE
We believe that our success in the software market depends significantly
upon our proprietary technology. To protect our technology from
misappropriation, we currently rely on a combination of:
- copyright and trademark laws,
- trade secrets,
- confidentiality procedures and contractual provisions, and
- federal and state trade secrets, patent and copyright laws.
We have registered and applied for registration for certain service marks
and trademarks, and we intend to continue to evaluate the registration of
additional service marks and trademarks. Additionally, we generally copyright
our software and related user documentation. However, the copyright laws afford
only limited practical protection against duplication of the media embodying the
programs and the related user manuals.
Despite our efforts to protect our intellectual property rights,
unauthorized parties may attempt to copy aspects of our products or services or
to obtain and use information that we regard as proprietary. In addition, the
laws of some foreign countries do not protect proprietary rights to as great an
extent as do the laws of the United States. Monitoring and identifying
unauthorized use of such broadly disseminated products as personal computer
software is difficult. We expect software piracy to be a continuing problem for
the software industry. We rely upon software engineering and marketing skills to
protect our market position, in addition to the copyright and trademark or trade
secret protection discussed above. Because the software development industry is
characterized by rapid technological change, we believe that the following
factors are as important to establishing and maintaining a technology leadership
position as the various legal protections of our technology:
- the technological and creative skills of our personnel,
- new product developments,
- frequent product enhancements,
- brand name recognition, and
- reliable product maintenance.
There can be no assurance that our means of protecting our intellectual
property rights will be adequate or that our competitors will not independently
develop similar technology or duplicate our products or services or design
around our patents or other intellectual property rights. There also can be no
assurance that any issued patent will provide us with any competitive
advantages. We believe that we retain ownership rights to all software which we
have developed and commercially distribute, except for those components of the
software that we license from third parties. Our software is licensed and
generally provided in object code pursuant to shrink-wrap or on-screen license
agreements or executed license agreements which contain restrictions on
disclosure and transferability. In addition, we have, from time to time,
licensed to third parties the right to use, modify, reproduce, sub-license,
distribute and market certain of our software products or portions of our
software products. Such licensed software is provided in object code and, in
certain limited circumstances, source code, pursuant to agreements which contain
restrictions on disclosure and transferability.
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Certain technology used in our products is licensed on a perpetual, fully
paid, non-royalty-bearing basis from third parties. If any event occurred that
rendered technology licensed from a third party and incorporated in our products
unavailable to us, or if the technology is not appropriately supported and
enhanced by the licensor, we could be forced to expend financial and development
resources to replace that technology. Such expenditures could materially
adversely affect our business, financial condition and results of operations.
We are not aware that any of our products materially infringes upon the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim such infringement by us or our licensors with
respect to current or future products. We expect that software product
developers will increasingly be subject to such claims as the number of products
and competitors in our industry segment grows and the functionality of products
in different industry segments overlaps. Any such claims, with or without merit,
could be time consuming, result in costly litigation, cause product shipment
delays or might require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to us.
Litigation may be necessary to protect our proprietary technology. Our
competitors and potential competitors may resort to litigation as a means of
competition. Such litigation may be time consuming, costly and expose us to new
claims that we may not have anticipated. Although patent and intellectual
property disputes in the software area have often been settled through
licensing, cross-licensing or similar arrangements, costs associated with such
arrangements may be substantial, if they may be obtained at all. Any litigation
involving us, whether as plaintiff or defendant, regardless of the outcome,
including any litigation relating to claims which have been or may in the future
be asserted against us, may result in substantial costs and expenses to us and
cause a significant diversion of effort by our technical and management
personnel. In addition, there can be no assurance that litigation, instituted
either by or against us, will not be necessary to resolve issues that may arise
from time to time in the future with other competitors. Any such litigation
could have a material adverse effect upon our business, operating results and
financial condition. In the event of an adverse result in any such litigation,
we could be required to expend significant resources to develop non-infringing
technology, obtain licenses to the technology which is the subject of the
litigation on terms not advantageous to us, pay damages, and/or cease the use of
any infringing technology. There can be no assurance that we would be successful
in such development, that any such licenses would be available and/or that we
would have available funds sufficient to satisfy any cash awards.
VISUALCITIES.COM
We used a third party web site design firm to prepare our VisualCities.com
web site for its initial launch. We believe that the VisualCities.com web site
does not infringe on the intellectual property of others. However, the law
relating to the liability of web site operators for information carried on or
disseminated through their services is currently unsettled. Claims could be made
against web site providers under both United States and foreign law for
defamation, libel, invasion of privacy, negligence, copyright or trademark
infringement, or other theories based on the nature and content of the materials
disseminated through their web sites. Several private lawsuits seeking to impose
liability upon other web site providers currently are pending. In addition, we
may be unable to prevent unlawful activities by users of our web sites, and we
may be subject to civil or criminal liability for unlawful activities carried
out by users through our web sites. In order to reduce our exposure to this
liability, we may prohibit certain activities. We may in the future implement
other protective measures that could require us to spend substantial resources
and/or to reduce revenues by discontinuing certain service offerings. Any costs
incurred as a result of liability or asserted liability relating to unlawful
activities could harm our business.
EMPLOYEES
As of March 31, 2000, we had a total of 215 employees. Of this amount,
seventeen were employed by Renaissance, thirteen were employed by Junction 15
and twenty-two were employed by PWR. Of our 215 employees:
- 45 were primarily engaged in Internet and product development,
- 91 were primarily engaged in e-commerce marketing and sales,
including telemarketers,
- 43 were primarily engaged in customer and technological support,
production and fulfillment, and
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- 36 were primarily engaged in general and administrative functions.
Of our 215 total employees, 104 are located in the United States and 111
are located internationally. From time to time, we also utilize independent
contractors in connection with our product development, administration and
marketing activities.
We have never experienced a work stoppage and believe that we have
satisfactory relations with our employees and contractors.
RISK FACTORS
You should carefully consider the following risk factors.
WE HAVE INCURRED LOSSES TO DATE AND THERE IS NO ASSURANCE THAT WE WILL BECOME
PROFITABLE.
We have been unprofitable since our inception in July 1992 and may continue
to incur operating losses for the foreseeable future. For the year ended
December 31, 1999, we had a net loss attributable to common stockholders of
approximately $5,683,000. For the year ended December 31, 1998, we had a loss of
approximately $2,407,000. Our operating losses may increase as we:
- develop our e-commerce services business,
- develop, produce and distribute additional products and services,
- de-emphasize other products and services,
- implement our growth strategy, which is expected to include
investments required to accelerate the growth of acquired companies,
- develop our Internet commerce network, and
- operate in a multi-currency marketplace.
No assurance can be given that we will ever become profitable nor, if we
obtain profitability, that we would thereafter maintain profitability.
WE HAVE LIMITED EXPERIENCE AS AN E-COMMERCE MARKETER AND SERVICE PROVIDER.
Our historical operations have been as a developer and marketer of software
products, primarily visual communication applications. We have only recently
focused our resources on competing in the e-commerce services market. This has
been primarily accomplished by offering our telemarketing, direct marketing,
call center and fulfilment services to third party e-commerce and other
businesses and our acquisitions of Renaissance Multimedia, Junction 15 and PWR
Systems. Accordingly, there is little historical information on which you can
base an evaluation of our new businesses and prospects. As an e-commerce
services company, we face risks and uncertainties that are different than the
risks and uncertainties we faced and continue to face with our software
operations. To address these new risks and uncertainties, we must do the
following:
- continue to raise working capital to be able to compete effectively
in the e-commerce services market with well-funded competition,
- attract, integrate, retain and motivate qualified personnel,
- maintain and enhance our brands,
- successfully execute our business acquisition and marketing strategy,
- continue to develop and upgrade our technology and information
processing systems,
- provide superior customer service, and
- respond to competitive developments.
We may be unable to accomplish one or more of these things, which could
cause our business to suffer. In addition, accomplishing one or more of these
things may be very expensive, which could adversely affect our ability to
achieve profitability and thereafter operate profitably.
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WE ANTICIPTE SIGNIFICANT EXPANSION WHICH, IF NOT MANAGED CORRECTLY, COULD HARM
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Our business strategy calls for us to aggressively pursue acquisitions of
e-commerce solutions companies. To address potential growth in our business
operations and market opportunities and in executing our business strategies, we
may experience a period of significant expansion in:
- the number of our employees,
- our facilities,
- our infrastructure, and
- the number of countries in which we maintain operations.
We expect this anticipated expansion will place a significant strain on our
management, operational and financial resources.
WE MAY BE UNABLE TO IMPLEMENT OUR ACQUISITION GROWTH STRATEGY, WHICH COULD HARM
OUR BUSINESS AND COMPETITIVE POSITION.
Our business strategy includes making strategic acquisitions of other
companies or businesses, including e- commerce solutions providers, web site
designers, systems integrators and other firms. Our continued growth will depend
on our ability to identify and acquire, on acceptable terms, companies that
complement or enhance our businesses. The competition for acquisition candidates
is intense and we expect this competition to increase. There is no assurance
that we will identify and successfully compete for appropriate acquisition
candidates or complete acquisitions at reasonable purchase prices, in a timely
manner or at all. Further, we may not be able to realize the anticipated results
of future acquisitions. In implementing our acquisition growth strategy, we may
encounter:
- costs associated with incomplete acquisitions,
- expenses, delays and difficultiesof integrating acquired companies
into our existing organization,
- the impact of amortizing goodwill and other intangible assets of
acquired companies on our statement of income,
- dilution of the interest of existing stockholders if we issue our
stock in making acquisitions or if we sell our stock to the public to
raise cash for acquisitions,
- diversion of management's attention,
- increases in our expenses in order to advertise and promote acquired
companies and their and our current products and services,
- unusual impacts on our financial condition due to the timing of
acquisitions, and
- expenses of any undisclosed or potential legal liabilities of an
acquired company.
Any of these matters could have a material adverse effect on our business,
results of operations and financial condition.
ACQUISITIONS COULD RESULT IN OPERATING DIFFICULTIES AND OTHER HARMFUL
CONSEQUENCES TO US.
If appropriate opportunities present themselves, we intend to acquire
businesses, technologies, services or products. The process of integrating the
operations of any acquisition, including our recent acquisitions of Renaissance
Multimedia, Junction 15 and PWR Systems, may create unforeseen operating
difficulties and expenditures and is itself risky.
To the extent we use cash consideration for acquisitions in the future, we
may need to obtain additional financing which may not be available on favorable
terms or at all. To the extent our management must devote significant time and
attention to the integration of technology, operations, businesses and personnel
as a result of these acquisitions, our ability to service current customers and
attract new customers may suffer. In addition, our senior management faces the
difficult and potentially time consuming challenge of implementing uniform
standards, controls, procedures and policies throughout our operating units,
including future acquisitions. We could also experience financial or other
setbacks if any of the acquired businesses experience unanticipated problems.
Further, we may experience disputes with the sellers of acquired businesses and
may fail to retain key acquired personnel.
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In addition, we may experience a decline in employee morale and retention issues
resulting from changes in compensation, reporting relationships, future
prospects, or the direction of the business.
Moreover, the anticipated benefits of any or all of these acquisitions may
not be realized. Future acquisitions could result in the incurrence of debt,
contingent liabilities and amortization expenses related to goodwill and other
intangible assets, each of which could have a material adverse effect on our
operating results and financial position.
FAILURE TO OBTAIN IRS CLOSING AGREEMENT COULD RESULT IN LARGE TAX PAYMENT.
In September 1997, we applied for a closing agreement with the IRS pursuant
to which we would become jointly and severally liable for Software Publishing
Corporation's tax obligations upon occurrence of a "triggering event" requiring
recapture of dual consolidated losses previously utilized by SPC. Such closing
agreement would avoid SPC's being required to recognize a tax of approximately
$8.0 million on approximately $24.5 million of SPC's pre-acquisition dual
consolidated losses. We have received notification from the IRS that the IRS
determined not to act on our application until SPC submitted additional filings
pertaining to pre-acquisition filings made by SPC. We have submitted these
filings in an application for relief. We believe that, if the IRS accepts the
application for relief, and the re-application for a closing agreement is made,
the IRS should agree to a closing agreement. However, no assurance can be given
that the IRS will do so, and any failure to do so could result in the
recognition of this tax liability. Should such a closing agreement be obtained,
under certain circumstances, a future acquirer of SPC or us also may be required
to agree to a similar closing agreement in order to avoid the same tax
liability. This could have a material adverse effect on our future ability to
sell SPC. The report of our auditors covering our December 31, 1999 consolidated
financial statements contains a paragraph emphasizing these dual consolidated
losses.
WE MUST CONTINUE TO DEVELOP OUR VISUALCITIES.COM WEB SITE IN ORDER TO MAKE IT
COMPETITIVE.
Only a limited number of expected functions are currently operational on
our VisualCities.com web site. In order to attract and maintain visitors to the
web site, we must complete our development, including, adding additional
functions.
OUR SOFTWARE REVENUES MAY CONTINUE TO DECLINE.
We have experienced a decline in software revenues, primarily from our
North American software operations, including in our 1999 fiscal year. We
believe that we must continue to enhance our software products, develop
additional products, license successful products, create strategic alliances,
implement successful marketing programs and reduce operating costs of our
software business, in order to remain competitive in the software industry. No
assurance can be given that we will be able to do so in a commercially
successful manner.
ITES 2. DESCRIPTION OF PROPERTY
Our principal executive offices are located at Glenpointe Centre East, 300
Frank W. Burr Boulevard - 7th Floor, Teaneck, New Jersey 07666. The lease for
this facility terminates in January 2003 and provides for average annual rental
costs of approximately $120,000, for approximately 4,750 square feet of space.
Serif Inc. leases approximately 25,400 square feet of office and warehouse space
in Nashua, New Hampshire pursuant to a lease ending in March 2002. This facility
serves as our primary North American telemarketing, customer support, product
development, warehouse and fulfillment center. Rental costs for the Nashua
facility currently average approximately $90,000 per year. Serif (Europe)
Limited leases approximately 20,000 square feet of office and warehouse space in
Nottingham, England under a lease which terminates in May 2002. This facility
serves as our United Kingdom telemarketing center and European warehouse and
fulfillment center. The rental cost for the Nottingham facility currently
averages approximately $128,000 per year (based on current exchange rates). We
also lease approximately 4,000 square feet of office space in Aachen, Germany
pursuant to a lease which expires in September 2001, with an expected rental
cost of approximately $52,000 per year (based on current exchange rates).
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This facility serves as our continental European sales and customer support
office and houses our multi-lingual call center.
We conduct our website design services primarily from the offices of our
Renaissance Multimedia and Junction 15 subsidiaries. Renaissance Multimedia
currently occupies approximately 2,700 square feet of office space in New York
City under a lease expiring in April 2002. Our current rental costs for this
space are approximately $54,000 per year. Junction 15 currently occupies
approximately 1,000 square feet of office space in London, England under a lease
expiring in January 2002. Our current rental costs for this space are
approximately $16,000 per year.
We conduct our systems integration business primarily from the offices of
PWR Systems, which currently occupies approximately 5,000 square feet of office
and warehouse space in Bohemia, New York, a suburb of New York City, under a
lease expiring in February 2004. Our current rental costs for this space are
approximately $60,000 per year. PWR Systems also has offices located in New York
City and Boston, for the use by our employees in their sales and support
functions. The current rental costs for these offices currently aggregate to
approximately $13,000 per year.
We coordinate our executive, administrative, accounting, product
development, sales, marketing, purchasing and scheduling functions primarily
from our executive offices in Teaneck, New Jersey. Our telemarketing, sales and
fulfillment operations are located in our Nashua, New Hampshire, Nottingham,
England and Aachen, Germany facilities. Our inventory control, order processing,
warehousing and shipping activities related to such operations are located
primarily at our offices in Nashua and Nottingham. Our computer systems handle
order entry, order processing, picking, billing, accounts receivable, accounts
payable, general ledger, inventory control, catalog management and analysis, and
mailing list management.
We believe that our existing space provides us with adequate space for our
present operations for the near future. We expect to assume and lease additional
space in connection with future acquisitions of other businesses. We currently
are reviewing opportunities to lease additional office space in New York City.
We do not own nor do we contemplate owning any real property in the
foreseeable future. We do not currently have any policy imposing limitations,
whether by quantity or type, with respect to investments in real estate or
interests in real estate, investments in real estate mortgages or the securities
of or interests in persons primarily engaged in real estate activities.
Additionally, there is no policy currently in effect regarding investments in
real estate for possible capital gain or income. It is not anticipated that the
creation of any policy regarding real estate investments, and changes to any
such policy if created, will require a vote of holders of our securities.
ITEM 3. LEGAL PROCEEDINGS.
On April 7, 2000, we filed a stipulation of settlement dismissing with
prejudice the action commenced against us, Mark E. Leininger and Barry A.
Cinnamon in the United States District Court, Southern District of New York, on
January 30, 1998, under the caption Howard Milstein and Ronald Altman v. SPC
Holdings, Inc., Mark E. Leininger and Barry A. Cinnamon. The settlement was
without cost to us, other than our counsel fees and expenses that were not
covered by insurance.
In the fourth quarter of 1998, an action was commenced against us in the
Superior Court of the State of California in and for the County of Santa Clara,
under the caption Community Towers, LLC vs. Software Publishing Corporation
Holdings, Inc. In this action, Community Towers, LLC is seeking $300,000 in
damages for an alleged violation of a lease for office space located in San
Jose, California. This is the location where SPC had its principal place of
business and where we had our principal executive offices during the period of
January 1997 through January 1998. We no longer have any offices at this
location. We believe that the plaintiff's claims in this action are without
merit and intend to vigorously defend ourselves in this action. We have filed an
answer in this action denying the plaintiffs' allegations. We plan to file a
summary judgement motion for a court determination in our favor on the
plaintiff's claims.
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In February 2000, we received a demand for arbitration with respect to
certain fees payable in connection with an investment banking agreement which we
terminated. The claim calls for payment of $45,000 and reinstatement of warrants
to purchase 150,000 shares of our common stock which we canceled upon
termination of the investment banking agreement, and legal and other expenses in
connection with the arbitration. We believe that the claims in this arbitration
matter are without merit. We intend to vigorously defend ourself in this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION
Our common stock has traded on the Nasdaq SmallCap Market under the symbol
"VIZY" since August 2, 1999. Our common stock traded on the Nasdaq SmallCap
Market under the symbol "SPCOD" from May 28, 1998 through June 24, 1998, under
the symbol "SPCOC" from October 23, 1998 through January 14, 1999, and otherwise
from January 28, 1997 through August 1, 1999 under the symbol "SPCO." Our common
stock also has traded on the Boston Stock Exchange under the symbol "VZM" since
August 2, 1999 and under the symbol "SPO" from January 20, 1997 through August
1, 1999. The following table sets forth the range of high and low bid prices for
our common stock for the periods indicated as derived from reports furnished by
The Nasdaq Stock Market, adjusted to reflect our one-for-three reverse stock
split effective on May 27, 1998. Such adjustment has been made by multiplying
the closing prices by three and does not necessarily reflect the prices for our
common stock had such reverse stock split occurred prior to the periods
indicated. The information reflects inter-dealer prices, without retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
Fiscal 1998
- -----------
<S> <C> <C>
First Quarter . . . . . . . . . . . . . 2-13/16 1-1/2
Second Quarter . . . . . . . . . . . . 3 1-3/8
Third Quarter . . . . . . . . . . . . . 1-5/8 5/8
Fourth Quarter. . . . . . . . . . . . . 1-1/8 9/16
Fiscal 1999
- -----------
First Quarter . . . . . . . . . . . . . 1-31/32 15/16
Second Quarter. . . . . . . . . . . . . 4-7/16 1-21/32
Third Quarter . . . . . . . . . . . . . 4-1/4 2-1/4
Fourth Quarter. . . . . . . . . . . . . 4 2-1/8
Fiscal 2000
- -----------
First Quarter . . . . . . . . . . . . . 9-3/4 3
</TABLE>
As of March 31, 2000, the closing price for our Common Stock as reported on
Nasdaq was $6-1/8. As of the close of business on March 31, 2000, we had 711
stockholders of record. We estimate, based upon surveys conducted by our
transfer agent in connection with our 1999 Annual Meeting of Stockholders, that
we have approximately 5,000 beneficial holders of our common stock.
We have never paid cash dividends on our capital stock and do not
anticipate paying cash dividends in the foreseeable future. We currently intend
to retain any future earnings for reinvestment in our business. Any future
determination to pay cash dividends will be at the discretion of our board of
directors and will be dependent upon our financial condition, results of
operations, capital requirements and other relevant factors.
The market for our common stock is highly volatile. The trading price of
our common stock could widely fluctuate in response to, among other things:
- quarterly variations in our operating and financial results,
- announcements of technological innovations or new products by us or
our competitors,
- changes in prices of our products or our competitors' products and
services,
- changes in the product mix of our sales,
- changes in our revenue and revenue growth rates as a whole or for
individual geographic areas,
- business units, products or product categories,
- responses to our strategies concerning e-commerce and the Internet,
- unscheduled system interruptions,
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- our ability to timely develop, introduce and market new products, as
well as enhanced versions of our current products,
- additions or departures of key personnel,
- announcements of technological innovations or new services
by us or our competitors,
- changes in financial estimates by securities analysts,
- conditions or trends in the Internet and online commerce industries,
- changes in the market valuations of other Internet or e-commerce
service companies,
- developments in Internet regulations,
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments,
- sales of our common stock or other securities in the open market,
and
- other events or factors that may be beyond our control.
Statements or changes in opinions, ratings, or earnings estimates made by
brokerage firms or industry analysts relating to the market in which we do
business or relating to us could result in an immediate and adverse effect on
the market price of our common stock. In addition, the stock market has from
time to time experienced extreme price and volume fluctuations which have
particularly affected the market price for the securities of many software and
Internet companies which often have been unrelated to the operating performance
of these companies. These broad market fluctuations may adversely affect the
market price of our common stock.
(b) RECENT SALES OF UNREGISTERED SECURITIES
The information set forth below is a list of all our sales and issuances of
our equity securities occurring during 1999 and the first quarter of 2000 which
we have not otherwise disclosed in any of our Quarterly Reports on Form 10-QSB.
On November 22, 1999, we sold and issued 17,052 shares of our common stock
to one individual for gross proceeds of $25,578 upon the exercise of warrants
held by this individual. The issuance of such shares was a private transaction
exempt from registration under Section 4(2) of the Securities Act.
Between November 11, 1999 and December 30, 1999, we sold and issued an
aggregate of 80,024 shares of our common stock to a total of four of our vendors
in exchange for their reduction of a total of $216,249 in amounts due them. The
issuances of such shares were private transactions exempt from registration
under Section 4(2) of the Securities Act.
Between July 26, 1999 and August 24, 1999, we sold and issued an aggregate
of 1,750 shares of our Common Stock to a total of three individuals for gross
proceeds of $1,805 upon the exercises of options held by such individuals. The
issuances of such shares were private transactions exempt from registration
under Section 4(2) of the Securities Act.
In the first quarter of 2000, we sold and issued an aggregate of 226,695
shares of our common stock to a total of fifteen individuals and entities for
gross proceeds of $469,226 upon exercise of warrants held by these individuals
and entities. The issuances of such shares were private transactions exempt from
registration under Section 4(2) of the Securities Act.
In connection with our acquisition of Renaissance Multimedia in February
2000, we sold and issued an aggregate of 449,870 shares of our common stock to
the former shareholders of Renaissance Multimedia. The issuances of such shares
was a private transaction exempt from registration under Section 4(2) of the
Securities Act.
In connection with our acquisition of Junction 15 in March 2000, we sold
and issued an aggregate of 681,818 shares of our common stock to the former
shareholders of Renaissance Multimedia. The issuances of such shares was a
private transaction exempt from registration under Section 4(2) of the
Securities Act.
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In connection with our acquisition of PWR Systems in March 2000, we sold
and issued an aggregate of 1,500,000 shares of our common stock to the former
shareholders of Renaissance Multimedia. The issuances of such shares was a
private transaction exempt from registration under Section 4(2) of the
Securities Act.
In March 2000, we sold a total of 936,954 shares of our common stock to 45
accredited investors for gross proceeds of $4,216,293. The issuances of theses
shares were private transactions exempt from registration under Section 4(2) of
the Securities Act of 1933.
In March 2000, we accepted subscriptions for and sold a total of 762,471
shares of our common stock to eleven foreign investors for gross proceeds of
$3,392,996. The issuances of these shares were private transactions exempt from
registration pursuant to Section 4(2) of, and Regulation S promulgated under,
the Securities Act.
Our acquisition strategy may result in dilution to our stockholders. Our
business strategy calls for strategic acquisitions of businesses, technologies,
services and products. In connection with our recent acquisitions of Renaissance
Multimedia, Junction 15 and PWR Systems, among other consideration, we issued an
aggregate 2,631,688 shares of our common stock and paid $2,000,000 in cash and
promissory notes. We anticipate that future acquisitions will require cash and
issuances of our capital stock, including our common stock. To the extent we are
required to pay cash for any acquisition, we anticipate that we would be
required to obtain additional equity and/or debt financing. Such stock issuances
and financing, if obtained, may not be on terms favorable to us and could result
in substantial dilution to our stockholders at the time(s) of these stock
issuances and financings.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
NET SALES. Net sales increased by $1,619,624 or 8.9% to $19,891,357 in 1999
from $18,271,733 in 1998 primarily as a result of the introduction of sales of
the Company's Go Digital Camera Pak (introduced in the fourth quarter of 1998),
the introduction of Page Plus 6.0 in July 1999, and expanded operations in
Germany. Camera revenues were $5,259,000 in 1999, compared to $1,371,000 in
1998. The increase in camera revenues more than offset a decline in software
sales of approximately $2,300,000. We provided for returns in 1999 at 14% of
gross sales compared to 10% in 1998 because digital cameras have a higher return
rate than software and a higher proportion of our 1999 sales were of digital
cameras.
North America and International net sales for 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 % 1998 %
---- --- ---- ---
<S> <C> <C> <C> <C>
North America. . . . . . . . $ 6,730,271 33.8 $ 8,431,271 46.1
International. . . . . . . . 13,161,086 66.2 9,840,462 53.9
------------ ---- --------- ----
Total. . . . . . . . . . . . $ 19,891,357 100.0 $18,271,733 100.0
============ ===== =========== =====
</TABLE>
We have experienced a continuing negative trend in our North American
direct marketing software programs. We have addressed this trend by refocusing
our business strategy to include further overseas expansion and to utilize our
direct marketing and other core competencies to enhance our Internet services
business.
GROSS PROFIT. Our gross profit for 1999 was $13,520,251, or 68% of our net
sales, compared to $14,562,488, or 80% in 1998. The decline in gross margins for
1999 reflects a change in product mix resulting primarily from a higher
proportion of hardware sales as compared to software sales in the comparable
1998 period due to our Go Digital Camera Pak promotion and delays in the
introduction of additional software products. Digital cameras produced by third
parties carry lower margins than our proprietary software products. Our cost of
goods sold consisted primarily of product costs, royalties and inventory
allowances for damaged and obsolete products. Product costs have historically
consisted of the costs to purchase the underlying materials and print both
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boxes and manuals, media costs (CD-ROMs and other media), assembly costs,
and hardware costs. Cost of goods sold was $6,371,106 for 1999 compared to
$3,709,245 for 1998, an increase of 72%, reflecting increased sales in 1999 as
well as the change in product mix.
Our gross margins and operating income may be affected in particular
periods by the mix of distribution channels used, the mix of international and
domestic revenues, the mix of products sold and the timing of product
introductions, promotional pricing and rebate offers, return privileges and
marketing promotions in connection with new product introductions and upgrades.
These promotions may have a negative influence on average selling prices and
gross margins. In addition, gross margins are expected to fluctuate on a
quarterly basis as we utilize alternative direct response promotions. Gross
margins have also been, and may continue to be, adversely affected by
competitive pricing strategies in the software industry as a whole, including
competitive upgrade pricing, the OEM business and alternative licensing
arrangements. The Company expects additional gross margin fluctuations in 2000
as it expands its e-commerce services business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased by $3,694,564, or 27.4%, to
$17,175,520 for 1999 from $13,480,956 in 1998, primarily as a result of
increased catalog and direct mail costs, including the cost of developing an
expanded direct-response list in the United States and the introduction of a
direct mail program in Germany. Increases in direct marketing selling expenses
amounted to approximately $1,815,000. We establish several of our marketing
expenditure levels based on expected net revenues. We periodically review and
adjust our variable expenditure levels based on actual sales volumes.
Additionally we experienced increases in technical recruiting costs of
approximately $100,000 related to the competitive technical environment in which
we operate, increases in legal fees of approximately $200,000 primarily related
to litigation, an increase in consulting fees primarily associated with
financial and investment banking agreements of $370,000, and an $80,000 increase
in investor relations costs. Salary and wages increased by approximately
$700,000 as additional staffing and increased compensation expenses were
required in connection with VisualCities.com Inc., our European expansion, and
the development of our forward looking growth and acquisition strategy.
PRODUCT DEVELOPMENT. Product development expenses decreased $238,716 or
18.9% to $1,027,447 in 1999 from $1,266,163 in 1998, primarily as a result of
the reduction in development operations of our SPC subsidiary. Our product
development costs represented 5.2% of net sales in 1999 compared to 6.9% in
1998. We capitalized approximately $478,000 of product enhancement costs
associated with product designs where technological feasibility has been
established. All other development costs have been expensed in the period
incurred. We intend to continue to acquire externally developed technology,
explore strategic alliances and other methods of acquiring or licensing
technology, and invest in certain internal development projects, including the
updating of existing products. We believe that product development expenses may
increase in dollar amount in the future, although our long-term goal is to
continue to reduce product development costs as a percentage of sales.
AMORTIZATION OF GOODWILL AND PURCHASED TECHNOLOGY. In 1999 and 1998, we
incurred expenses of $2,219,363 and $2,377,282, respectively, in respect of the
amortization of goodwill and purchased technology associated with acquisitions
of the Serif companies and SPC. While this amortization has now been completed,
we expect increased amortization expenses associated with our recent and
anticipated future acquisitions.
UNREALIZED HOLDING GAIN ON MARKETABLE SECURITIES. The unrealized holding
gains of $322,652 and $90,000 in 1999 and 1998, respectively, represent the
increase in value of our investment in marketable securities characterized as
trading securities.
REALIZED GAIN. In a July 1, 1999 agreement, we agreed with the holder of
all our outstanding shares of Class C Preferred Stock that in the event we
called for redemption any of our shares of Class C Preferred Stock within 45
days, we would sell to the Holder 53,815 Xceed Shares which we owned, at a price
of $18.44 per Xceed Share, or $992,349 in the aggregate. On July 14, 1999, the
Board of Directors called for redemption all outstanding shares of Class C
Preferred Stock with a record date for such redemption of July 19, 1999. Such
transaction was consummated on July 19, 1999, leaving us with 66,185 shares of
Xceed common stock. We realized a gain of $642,444 on the exchange of our
marketable securities in this transaction.
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<PAGE>
OTHER EXPENSE (INCOME). Other expense (income) for the 1999 decreased
$35,236, or 37.2%, to $(59,503) from $(94,739) in 1998 primarily related to a
decline in interest income.
INCOME TAXES (BENEFIT). The income tax benefit for 1999 consists of
$(216,044) received under a state sponsored technology program which allowed for
the assignment of value to previously established net operating loss benefits.,
and $(34,934), relating principally to foreign tax benefits. The tax provision
for 1998 consisted of foreign and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents decreased by $647,153 to $1,730,495 at
December 31, 1999 from $2,377,648 at December 31,1998, primarily as a result of
using $3,103,610 of cash for operations and $811,109 for investing activities.
Our operating and investing activities for 1999 were primarily related to
increased direct marketing expenditures, the development of our VisualCities.com
website, our European expansion, and the costs associated with the development
of future software products. We intend to continue to utilize our working
capital in 2000 for Internet web site development, European expansion, securing
additional digital camera supplies, product development, marketing and
advertising, to finance the higher level of inventory and accounts receivable
necessary to support any increase in sales, for capital expenditures, including
the purchase of computer and internet services equipment, and for internal and
external software development, as well as to finance the costs of our e-commerce
services business, including the costs of acquisitions, and the respective
working capital needs of acquired companies. Our cash requirements, however, may
change depending upon numerous factors, including, without limitation, the cost
of integrating our businesses and the need to finance the licensing or
acquisition of third party software, as well as increased inventory and accounts
receivable arising from the sale and shipment of new products. Our 1999
financing activities consisted of receipt of net proceeds of $3,497,695 from the
sale of our common stock, option and warrant exercises , and the issuance of
long term debt net of repayments. We had working capital of $652,974 at December
31, 1999, an increase of $217,902 from our working capital at December 31, 1998
of $435,072, which increase was attributable primarily to the significant
unrealized appreciation in the value of our marketable securities.
We believe that our existing cash and cash equivalents and cash generated
from operations, if any, should be sufficient to meet our currently anticipated
liquidity and capital expenditure requirements for the next twelve months.. In
March and April 2000 we completed private placements of our common stock for an
aggregate of 1,699,425 shares raising aggregate gross proceeds of $7,609,289,
before associated placement costs. We utilized approximately $5,000,000 of these
proceeds to fund our acquisitions and associated legal and other costs thereof,
as well as working capital needs, for Renaissance Multimedia, Junction 15, and
PWR Systems in February and March 2000 as well as repay a $1,000,000 line of
credit loan. We plan to utilize the remaining proceeds to pursue additional
acquisition targets, expand our VisualCities.com website, including promotional
activities, develop our e- commerce services business, expand our European
operations, develop additional software products, and fund our other working
capital requirements. In the first quarter of 2000 we entered into a two-year
unsecured line of credit agreement for maximum borrowings of $1,000,000, at an
8% interest rate, with a foreign company. We borrowed $1,000,000 under this note
in February 2000. This note was repaid in full with accrued interest on March
20, 2000, and we now have $1 million available under this line of credit. We
have letter of credit facilities of approximately $260,000 relating to certain
lease obligations. Serif (Europe) Limited has a letter of credit facility of
approximately $200,000, which was fully drawn upon as of December 31, 1999, with
its primary bank in the United Kingdom, and which is secured by Serif (Europe)
Limited cash reserves of a similar amount. Serif (Europe) Limited has bank loans
of approximately $118,000 at December 31, 1999 which are secured by
substantially all of its assets. Our PWR Systems subsidiary, acquired on March
27, 2000, has a $1,000,000 bank credit facility, which we have guaranteed, and
an additional $1,000,000 credit facility, both of which are secured by PWR's
assets. There can be no assurance that we will be successful in attaining our
sales or strategic goals, or that attaining such goals will have the desired
effect on our cash resources.
Our exposure to foreign currency gains and losses is partially mitigated as
we incur operating expenses in the principal foreign currency in which we
invoice foreign customers. As of December 31, 1999, we had no foreign
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exchange contracts outstanding. Our foreign exchange gains and losses may
be expected to fluctuate from period to period depending upon the movement in
exchange rates.
We have entered into a five-year consulting agreement pursuant to which we
are required to pay .30% of our net revenue (subject to an annual minimum fee of
$125,000, and an annual maximum fee of $250,000) to the consultant. The term of
the agreement may be extended automatically by an additional eighteen months if
we report annual net revenues of $40,000,000, and an additional eighteen months
should net revenues exceed $60,000,000. At December 31, 1999, we have accrued
$125,000 in connection with this agreement.
On July 27, 1999 we entered into a minimum annual purchase commitment of
approximately $230,000 with a distributor of certain software the Company
intends to sell in its direct mail operation. We anticipate that we will fulfill
such commitment from our operational resources.
We had a backlog of approximately $500,000 as of December 31, 1999,
primarily relating to digital cameras.
NET OPERATING LOSS CARRYFORWARDS
We estimate our consolidated tax net operating loss carryforwards to be
approximately $35 million at December 31, 1999, after consideration for
limitations on the use thereof, which expire in years 2002 through 2019. Under
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
changes in the ownership or the business of a corporation that has net operating
loss carryforwards can result in the inability to use or the imposition of
significant restrictions on the use of such net operating loss carryforwards to
offset future income and tax liability of such corporation. An "ownership
change" may be deemed to have occurred under Section 382 of the Code and the
regulations thereunder with respect to both the Company and SPC, and the use by
the Company of these net operating loss carryforwards will be limited.
Utilization of the net operating loss carryforwards of SPC may be further
limited by reason of the consolidated return/separate return limitation year
rules. We estimate the maximum utilization of such net operating loss
carryforwards to be approximately $1,200,000 per year for losses through
December 31, 1996. There can be no assurance that we will be able to utilize all
of our net operating loss carry forwards. In addition, the foreign losses
incurred by SPC may decrease or otherwise restrict our ability to claim U.S. tax
credits for foreign income taxes.
POSSIBLE TAX OBLIGATION
We have applied for a closing agreement with the IRS pursuant to which we
would become jointly and severally liable for SPC's tax obligations upon
occurrence of a "triggering event" requiring recapture of dual consolidated
losses previously utilized by SPC. Such closing agreement would avoid SPC's
being required to recognize a tax of approximately $8 million on approximately
$24.5 million of SPC's previous dual consolidated losses. The IRS notified us
that it determined not to act on our application until SPC submitted certain
filings pertaining to pre-acquisition consolidated tax year return filings made
by SPC. We have submitted these filings in an application for relief. We believe
that should the IRS accept the application for relief, and once a re-application
for a closing agreement is made, the IRS should agree to such a closing
agreement. However, no assurance can be given that the IRS will do so, and any
failure to do so could result in the recognition of this tax liability. Should
such a closing agreement be obtained, in certain circumstances, a future
acquirer of the Company may also be required to agree to a similar closing
agreement in order to avoid the same tax liability, to the extent it is able to
do so. This could have a material adverse effect on our future ability to sell
SPC. The report of our auditors covering the December 31, 1999 consolidated
financial statements contains a paragraph emphasizing these dual consolidated
losses.
YEAR 2000 UPDATE
We completed our Year 2000 preparations as planned. Through the first
quarter of the Year 2000 our operations have not experienced any material
problems associated with the Year 2000. Further, no problems have been
identified with respect to any of our key suppliers, nor have we had any reports
with respect to the products we
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<PAGE>
sell. We expended a total of approximately $90,000 in our Year 2000
compliance review and implementation efforts through December 31, 1999. No
further costs in the Year 2000 are expected.
SEASONALITY
The computer software market is characterized by significant seasonal
swings in demand, which typically peak in the fourth quarter of each calendar
year. The seasonal pattern is due primarily to the increased demand for software
during the year-end holiday buying season and reduced retail and corporate
demand for business software during the European Easter and summer vacation
period. We expect our net sales and operating results to continue to reflect
this seasonality. Our revenues may also experience substantial variations as a
result of a number of factors, such as consumer and business preferences and
introduction of competing products and services by competitors. There can be no
assurance that we will achieve consistent growth or profitability on a quarterly
or annual basis.
INFLATION
We believe that inflation has generally not had a material impact on our
operations.
ITEM 7. FINANCIAL STATEMENTS.
We set forth below a list of the financial statements of Vizacom Inc.
included in this Annual Report on Form 10-KSB.
Item Page*
- ---- -----
Independent Auditors' Reports. . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet at December 31, 1999. . . . . . . . . . . . . . F-4
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-8
We set forth below a list of the financial statements of
Renaissance Computer Art Center, Inc., d/b/a Renaissance Multimedia,
included in this Annual Report on Form 10-KSB.
Item Page*
- ---- -----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-28
Balance Sheet at December 31, 1999 . . . . . . . . . . . . . . . . . . . . F-29
Statement of Operations and Retained Earnings for the
year ended December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . F-30
Statement of Cash Flows for the year ended December 31, 1999 . . . . . . . F-31
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-32
We set forth below a list of the financial statements of
Junction 15 Limited included in this Annual Report on Form 10-KSB.
Item Page*
- ---- -----
Directors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-37
Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39
Profit and Loss Account for the year ended 31 December 1999. . . . . . . . F-40
Balance Sheet as at December 31, 1999. . . . . . . . . . . . . . . . . . . F-41
Cash Flow Statement for the year ended 31 December 1999. . . . . . . . . . F-42
Notes to the Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . F-43
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . . . F-44
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<PAGE>
We set forth below a list of the financial statements of P. C.
Workstation Rentals, Inc., d/b/a PWR Systems, and Storageland, Inc.
included in this Annual Report on Form 10-KSB.
Item Page*
- ---- -----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-51
Combined Balance Sheets at December 31, 1999 and 1998. . . . . . . . . . . F-52
Combined Statement of Operations and Retained Earnings for
the years ended December 31, 1999 and 1998. . . . . . . . . . . . . . . . F-53
Statements of Combined Cash Flows for the years ended
December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . . F-54
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . F-55
- ----------
* Page F-1 follows page 68 to this Annual Report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
OUR EXECUTIVE OFFICERS AND DIRECTORS
Our current executive officers and directors, and their ages, positions and
offices with us are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES
<S> <C> <C>
Mark E. Leininger 49 President, Chief Executive Officer and Director
Marc E. Jaffe, Esq. 47 Chairman of the Board of Directors and Secretary
Norman W. Alexander 69 Director
Vincent DiSpigno 43 Vice President and Director; Chief Executive Officer of PWR Systems
Werner G. Haase 61 Director
Neil M. Kaufman, Esq. 39 Director
David N. Salav 33 Vice President and Director; President of PWR Systems
Rand Schulman 47 Executive Vice President
Alan W. Schoenbart 41 Vice President - Finance and Chief Financial Officer
</TABLE>
Set forth below is a brief description of the background of our executive
officers and directors, based on information provided by them to us.
MARK E. LEININGER has served as a director since July 1996, our president
since January 1998 and our chief executive officer since July 1999. He served as
our chief financial officer from July 1995 through December 1997 and our chief
operating officer from September 1996 to July 1999. From February 1994 through
April 1995, Mr. Leininger was the president of Phoenix Leasing Corporation, a
passenger and cargo air carrier and aircraft leasing company, which filed for
bankruptcy protection in 1996. From February 1986 through February 1994, Mr.
Leininger held various positions, including chief financial officer and chief
operating officer, with Mid Pacific Air Corporation, a transportation and
service company whose stock was traded on Nasdaq. Mr. Leininger received an MBA
degree from National University, San Diego, California in 1979 and a BA from
Miami University, Oxford, Ohio in 1972.
MARC E. JAFFE, ESQ., has served as a director since August 1995, our
chairman of the board of directors since January 1998 and our secretary since
December 1997. In his capacity as chairman, he does not serve as our chief
executive officer. Mr. Jaffe is managing director - New York of Double Impact,
Inc., a global venture catalyst for Internet-based companies. Since 1992, Mr.
Jaffe has been president of Electronic Licensing Organization, Inc., which, from
time to time, has acted as our agent in the acquisition of certain electronic
publishing rights. From 1988 to 1991, Mr. Jaffe was executive vice president of
database management for Franklin Electronic Publishers, a New York Stock
Exchange-listed company engaged in the business of publishing electronic books
on hand held media. From 1985 through 1987, Mr. Jaffe was President of the
software and video division of Simon & Schuster, a publishing company. Mr. Jaffe
received a JD degree from Columbia University School of Law in 1976 and a BA
from Columbia College in 1973.
NORMAN W. ALEXANDER has served as a director since December 1996. Mr.
Alexander is a retired former director of Imperial Foods Ltd., a food products
company, and formerly was the chairman of several subsidiaries of Imperial Foods
Ltd.
VINCENT DISPIGNO has been a director and vice president since April 2000
and has been the chief executive officer of PWR Systems since June 1994. For
three years prior to that, Mr. DiSpigno was a corporate marketing manager for
Arrow Electronics Inc., a major electronics distributor. For five years prior to
that, Mr. DiSpigno was a district manager for BusinessLand Inc., a national
value added reseller.
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<PAGE>
WERNER G. HAASE has served as a director since May 1999. Mr. Haase has
been, since July 1996, the co- chairman and chief executive officer of Xceed
Inc., formerly X-Ceed, Inc., a Nasdaq-listed company providing performance
improvement services, Internet-based performance improvement programs and
communication services and corporate travel management services. Mr. Haase also
served as a director of Xceed Inc. from September 1987 to July 1996, as a
director and chief executive officer of Journeycraft, Inc. prior to its
acquisition by Xceed Inc. in July 1996 and was the owner, with Nurit Kahane
Haase, of TheraCom Integrated Medical Communications, Inc. prior to its
acquisition by Xceed in July 1996.
NEIL M. KAUFMAN, ESQ., has been a director since December 1996. Mr. Kaufman
served as our secretary from December 1996 to December 1997. Mr. Kaufman is
currently a member of Kaufman & Moomjian, LLC, our corporate counsel. From
January 1997 to December 1997, Mr. Kaufman was a partner in Moritt, Hock &
Hamroff, LLP. From 1993 to January 1997, he was a member of Blau, Kramer,
Wactlar & Lieberman, P.C. From 1984 to 1993, Mr. Kaufman was associated with
Lord Day & Lord, Barrett Smith. Each of these three law firms served as our
counsel during the periods in which Mr. Kaufman was affiliated or associated
with such firms. Mr. Kaufman received a JD degree from New York University
School of Law in 1984 and a BA degree from SUNY Binghamton in 1981.
DAVID N. SALAV has been a director and vice president since April 2000 and
has been the president of PWR since its inception in 1991. For one year prior to
that, Mr. Salav was a business development manager for Arrow Electronics, a
major electronics distributor. Mr. Salav received a B.A. degree from the State
University of New York at Buffalo in 1989.
RAND SCHULMAN has served as our executive vice president since March 2000.
From November 1997 to March 2000, Mr. Schulman was chief executive officer of
Keylime Software, Inc, a B2B e-business analysis service company. From July 1994
to March 1997, he was executive vice president and vice president of marketing
of TriTeal Corp. a Unix software company. From January 1992 to June 1994, Mr.
Schulman served as vice president of sales and marketing at Pages Software, a
computer software company. Mr. Schulman was employed in various capacities from
December 1983 to January 1992 by Island Graphics/Dainippon Screen Mfg. Co., a
computer software company, serving most recently as general manager and senior
vice president.
ALAN W. SCHOENBART has been our vice president - finance and chief
financial officer since April 1999. Mr. Schoenbart served as chief financial
officer of Windswept Environmental Group Inc., an environmental remediation
company, from September 1997 to April 1999. He was chief financial officer of
Advanced Media Inc., a multimedia company, from August 1995 to August 1997. Mr.
Schoenbart was controller of GoodTimes Entertainment, a producer and distributor
of video and software products, from September 1993 to July 1995. Mr. Schoenbart
is a certified public accountant and received a BS degree from Fairleigh
Dickinson University in 1981.
The loss of the services of our principal executive officers could have a
material adverse effect on us. We are significantly dependent upon the continued
availability of Mark E. Leininger, our president and chief executive officer,
Rand Schulman, our executive vice president, and Alan W. Schoenbart, our vice
president - finance and chief financial officer. Mr. Leininger has entered into
an employment agreement with us, but neither of Messrs. Schoenbart nor Schulman
currently are subject to either an employment or non-competition agreement with
us. The loss or unavailability to us of either of Messrs. Leininger, Schulman or
Schoenbart for an extended period of time could have a material adverse effect
on our business operations and prospects. To the extent that their services
would be unavailable to us for any reason, we would be required to procure other
personnel to manage and operate the Company. There can be no assurance that we
will be able to locate or employ such qualified personnel on acceptable terms.
At the present time, we have "key man" life insurance covering only the life of
Mr. Leininger. The amount of this insurance is $2,000,000.
THE THREE CLASSES OF OUR BOARD
Our board of directors is divided into three classes. The directors in each
class serve for three-year terms. Set forth below are the members of each class
and the year in which the term of each director class expires.
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<TABLE>
<CAPTION>
Class I Class II Class III
(To Serve Until the Annual (To Serve Until the Annual (To Serve Until the Annual
Meeting of Stockholders in 2000) Meeting of Stockholders in 2001) Meeting of Stockholders in 2002)
- -------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
Marc E. Jaffe Norman W. Alexander Mark E. Leininger
Werner G. Haase Neil M. Kaufman David N. Salav
Vincent DiSpigno
</TABLE>
DIRECTOR COMPENSATION
Directors receive no cash compensation for their services as directors, but
are reimbursed for expenses actually incurred in connection with attending
meetings of our board of directors. Members of our board who are not also
employees, of which there currently are three, are eligible to participate in
our Outside Director and Advisor Stock Option Plan. Our board met eleven times
and acted by unanimous written consent on one occasion during 1999. All of our
current directors attended not less than 75% of such meetings of the board and
committees thereof on which they serve, except that Werner G. Haase attended two
of six meetings of the Board during the period in which he has served as one of
our directors.
BOARD COMMITTEES
The audit committee of our board of directors currently consists of Norman
W. Alexander, Werner G. Haase and Neil M. Kaufman. Our audit committee met four
times during 1999. Our audit committee recommends the engagement of our
independent certified public accountants. The audit committee is primarily
responsible for reviewing and approving the scope of the audit and other
services performed by our independent certified public accountants. The audit
committee also reviews and evaluates our accounting principles and practices,
systems of internal controls, quality of financial reporting and accounting and
financial staff, as well as any reports or recommendations issued by the
independent accountants.
The compensation committee of our board of directors currently consists of
Norman W. Alexander and Werner G. Haase. Our compensation committee held four
meetings during 1999. The compensation committee generally reviews and approves
of our executive compensation and administers all of our stock plans.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 and amendments to these
forms furnished to us, together with written representations received by us from
applicable parties that no Form 5 was required to be filed by such parties, all
parties subject to the reporting requirements of Section 16(a) of the Exchange
Act filed all such required reports during and with respect to our 1999 fiscal
year, except that (a) Norman W. Alexander failed to timely file his Form 5 with
respect to an option granted him by our Board of Directors in January 1999 and
(b) Werner G. Haase failed to timely file his form 5 with respect to his
automatic option grant in August 1999 under our Outside Director and Advisor
Stock Plan.
ITEM 10. EXECUTIVE COMPENSATION.
The following summary compensation table sets forth, for the three years
ended December 31, 1999, the cash and other compensation paid to Mark E.
Leininger, our president and chief executive officer, and Alan W. Schoenbart,
our vice president - finance and chief financial officer. No other individual
served as an executive officer of our company during 1999 whose total
compensation, for services rendered during 1999, was $100,000 or more.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation ------
Securities
Name and Principal Positions Year Salary Bonus Underlying Options
- ---------------------------- ---- ----- ----- ------------------
<S> <C> <C> <C> <C>
Mark E. Leininger, President and 1999 $ 162,500 -- 80,000
Chief Executive Officer 1998 145,000 -- 312,188
1997 145,000 $ 39,737 281,666
Alan W. Schoenbart, Vice President - 1999 92,361 15,000 110,000
Finance and Chief Financial Officer 1998 -- -- --
1997 -- -- --
</TABLE>
For purposes of the summary compensation table,
- the value of all perquisites provided to these executive
officers did not exceed the lesser of $50,000 or 10% of the executive
officer's salary and bonus,
- options granted to Mr. Leininger in 1998 include options to
purchase 102,188 shares of our common stock repriced under our 1998
repricing program, as discussed in "Repricing of Options" and "Certain
Transactions" below,
- options granted to Mr. Leininger in 1997 include options to
purchase 181,666 shares of our common stock repriced and reduced to
options to purchase 136,250 shares of our common stock under our 1997
repricing program.
STOCK OPTION GRANTS IN 1999
The following table sets forth:
- the number of shares underlying options granted during 1999 to
Mark E. Leininger and Alan W. Schoenbart, the only executive officers
listed in the summary compensation table above,
- the percentage that the option grant represents of the total number of
options granted to all of our employees during 1999,
- the per share exercise price of each such option, and
- the expiration date of each such option.
<TABLE>
<CAPTION>
Number of Shares Percentage of Total
Underlying Options Options Granted to Exercise Expiration
Name Granted During 1999 Employees in 1999 Price Date
- ---- ------------------- ------------------- -------- ----------
<S> <C> <C> <C> <C>
Mark E. Leininger. . . . . 80,000 10.8 $1.375 1/26/09
Alan W. Schoenbart . . . . 110,000 14.9 $1.03125 4/05/09
</TABLE>
AGGREGATE OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
Set forth in the table below is information, with respect to Mark E.
Leininger and Alan W. Schoenbart, our only executive officers listed in the
summary compensation table above, as to:
- the total number of unexercised options held on December 31,
1999, separately identified between those exercisable and those not
exercisable as of such date, and
- the aggregate value of in-the-money, unexercised options
held on December 31, 1999, separately identified between those
exercisable and those not exercisable.
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
-------------------- --------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark E. Leininger . . . . . . . . 310,673 115,577 $658,642 $225,910
Alan W. Schoenbart. . . . . . . . 50,000 60,000 114,063 136,875
</TABLE>
None of our executive officers listed in the summary compensation table
above exercised any of their options during 1999. The value of unexercised
in-the-money options is calculated by subtracting the aggregate exercise price
of the options from the aggregate market price of the shares underlying the
options as of December 31, 1999.
EMPLOYMENT AGREEMENTS
We have entered into a three year employment agreement with Mark E.
Leininger. This employment agreement provides for a base salary of $162,500 in
1999, at least $172,500 in 2000 and at least $182,500 in 2001 and annual
incentive compensation equal to 3% of our pre-tax income for the year in which
the incentive compensation relates. This agreement with Mr. Leininger also
provides for the continued payment, for a three year period, of his then current
salary and compensation if his employment is terminated without cause. Further,
this employment agreement provides for the payment to Mr. Leininger of an amount
equal to three times his average total compensation for the five prior fiscal
years, minus $1.00, if there is a change of control of our company and Mr.
Leininger elects to terminate his employment within six months of his first
becoming aware of such change in control. This employment agreement also
contains restrictions on his engaging in competition with us for the employment
term and for up to one year thereafter and provisions protecting our proprietary
rights and information. In October 1996, our board of directors decided to pay
to Mr. Leininger a bonus of $25,000 following our first profitable fiscal
quarter after the fourth quarter of 1996. This bonus has not been paid.
On January 28, 1998, the compensation committee of our board of directors
determined to compensate Marc E. Jaffe for his services as chairman of our board
of directors at the rate of $5,000 per month, payable $2,500 in the month of
service and $2,500 twelve months after such initial payment. During 1998, we
paid Mr. Jaffe $30,000 under this arrangement and, pursuant to a letter
agreement, dated December 17, 1998, between us and Mr. Jaffe, we issued to Mr.
Jaffe 30,000 shares of our common stock in satisfaction of $22,500 of our
obligations under this letter agreement. On January 13, 1999, the compensation
committee determined to compensate Marc E. Jaffe for his services as chairman of
the board for the 1999 calendar year at the rate of $5,000 per month. In
November 1999, we agreed to pay Mr. Jaffe an additional $3,000 per month for
November and December 1999 for additional services we requested that he perform.
We have entered into three year employment agreements with each of Vincent
DiSpigno, one of our vice presidents and the chief executive officer of our PWR
Systems subsidiary, and David Salav, another of our vice presidents and the
president of our PWR Systems subsidiary. Each of these agreements provides for
an annual base salary of $200,000 and $25,000 annual bonuses if PWR attains a
30% increase in revenues over the prior year and PWR Systems has either at least
a 20% gross margin or $1,000,000 in net income for the subject year. Pursuant to
these two employment agreements, we expanded our board of directors and elected
Messrs. DiSpigno and Salav to our expanded board. During the term of these two
employment agreements, we have agreed to use our best efforts to cause their
reelections to our board when their initial terms expire. These two employment
agreements also contain restrictions on the employee engaging in competition
with us for the employment term and for one year thereafter and provisions
protecting our proprietary rights and information.
We intend to enter into an employment agreement with Rand Schulman, our
executive vice president, to expire on March 14, 2001. We anticipate that this
agreement will provide for one-year renewals at the election of both Mr.
Schulman and us. We anticipate that this agreement will provide for a base
salary of $225,000, an annual bonus of $42,500, relocation payments and a
housing allowance. We anticipate that this employment agreement
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<PAGE>
will also contain restrictions on Mr. Schulman engaging in competition with
us for the term of the agreement and for one year thereafter and provisions
protecting our proprietary rights and information.
OUR STOCK PLANS
We adopted our various stock plans in order to assist us in attracting and
retaining qualified employees, directors, officers and outside consultants and
to align the interests of such persons with those of our stockholders.
The following is a brief description of our stock plans.
1994 LONG TERM INCENTIVE PLAN
Our 1994 Long Term Incentive Plan provides for the grant of incentive stock
options, non-qualified stock options, stock appreciation rights, restricted
stock, performance grants and other types of awards. The 1994 Incentive Plan,
which is administered by the compensation committee of our board of directors,
currently authorizes the issuance of a maximum of 5,000,000 shares of our common
stock. Incentive stock options generally may be granted at an exercise price of
not less than the fair market value of shares of our common stock on the date of
grant, and non-qualified stock options may be granted at an exercise price of
not less than 85% of such fair market value. If any award under the 1994
Incentive Plan terminates, expires unexercised or is canceled, the shares of our
common stock that would otherwise have been issuable pursuant thereto will be
available for issuance pursuant to the grant of new awards. As of March 31,
2000, we have issued an aggregate 136,514 shares of our common stock upon
exercise of options granted under the 1994 Incentive Plan and issued 50,000
shares of our common stock as awards under the 1994 Incentive Plan. Options to
purchase an aggregate 4,223,912 shares were outstanding and 639,574 shares
remain available for issuance under the 1994 Incentive Plan, as of March 31,
2000. The 1994 Incentive Plan expires in December 2003.
OUTSIDE DIRECTOR AND ADVISOR STOCK OPTION PLAN
Our non-employee directors, of which there are presently three, are
eligible to participate in our Director and Advisor Stock Option Plan.
Currently, up to 750,000 shares of our common stock may be issued under the
Director and Advisor Plan. Under the Director and Advisor Plan, each
non-employee director, upon first becoming a director of our company, receives
an option to purchase 25,000 shares of our common stock at a price equal to the
fair market value of our common stock on the date of grant. On August 1st of
each subsequent year, each non-employee director receives an option to purchase
an additional 25,000 shares of our common stock at a price equal to the per
share fair market value of the common stock. In March 1997, the advisory
committee was eliminated. Options awarded to each non-employee director become
exercisable over a period of two years, and are subject to forfeiture under
certain conditions. We have issued an aggregate 21,033 shares of our common
stock upon exercise of options granted under the Director and Advisor Plan. As
of March 31, 2000, options to purchase an aggregate 162,191 shares were
outstanding and options to purchase 566,776 shares remain available for grant
under the Director and Advisor Plan. The Director and Advisor Plan expires in
December 2005.
SPC 1989 STOCK PLAN
Our SPC 1989 Stock Plan, which we assumed in connection with our
acquisition of Software Publishing Corporation in December 1996, provides for
the grant of incentive stock options, non-qualified stock options, stock
appreciation rights, stock purchase rights, incentive stock rights, performance
grants and other types of awards. We may grant awards under the SPC 1989 Plan to
both SPC's and our officers, key employees, consultants and independent
contractors. The SPC 1989 Plan, which is administered by the compensation
committee of our board of directors, currently authorizes the issuance of a
maximum of 89,350 shares of our common stock. Incentive stock options generally
may be granted at an exercise price of not less than the fair market value of
shares of our common stock on the date of grant. Non-qualified stock options may
be granted at an exercise price of not less than 50% of fair market value.
Incentive stock rights permit the rightsholder to receive cash or shares of our
common stock based upon our or the grantee obtaining results specified at the
time of the granting of such rights. Stock appreciation rights, which may be
granted in connection with an option grant or as a separate grant, entitles the
grantee to receive a cash payment based upon the yield of our common stock
between grant and exercise. Stock
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<PAGE>
purchase rights entitle the grantee to purchase shares of our common stock
at a price of not less than 50% of the fair market price of such shares with us
retaining a diminishing right to repurchase the shares over a specified period
should the rightsholder's relationship with us terminate. Long term performance
awards allow us to customize incentive award programs to permit the awarding of
cash or our common stock upon us or grantee obtaining specified levels of
performance. A total of 6,948 shares of our common stock have been issued upon
exercise of options granted under the SPC 1989 Plan. As of March 31, 2000,
options to purchase an aggregate 78,103 shares were outstanding under the SPC
1989 Plan. The SPC 1989 Plan terminated in October 1999, although options
granted under the SPC 1989 Plan may still be exercised in accordance with their
respective terms.
SPC 1991 STOCK OPTION PLAN
Our SPC 1991 Stock Option Plan, which we assumed in connection with our
acquisition of Software Publishing Corporation in December 1996, provides for
the grant of incentive stock options, non-qualified stock options and stock
purchase rights to SPC's and our officers, key employees, consultants and
independent contractors. The SPC 1991 Plan, which is administered by our
compensation committee, currently authorizes the issuance of a maximum of
142,960 shares of our common stock. Incentive stock options generally may be
granted at an exercise price of not less than the fair market value of our
common stock on the date of grant. Non-qualified stock options may be granted at
an exercise price of not less than 85% of fair market value. Stock purchase
rights entitle the rightsholder to purchase shares of our common stock at a
price of not less than 85% of the fair market price of such shares with us
retaining a diminishing right to repurchase such shares over a specified period
should the rightsholder's relationship with us terminate. If any award under the
SPC 1991 Plan terminates, expires unexercised, or is canceled, the shares of our
common stock that would otherwise have been issuable pursuant thereto will be
available for issuance pursuant to the grant of new awards. The equivalent of
2,688 shares of our common stock have been issued upon exercise of options
granted under the SPC 1991 Plan. As of March 31, 2000, we have options to
purchase an aggregate 135,384 shares of our common stock outstanding and 1,389
shares remain available for issuance under the SPC 1991 Plan. The SPC 1991 Plan
will terminate in October 2001.
LIMITATION ON LIABILITY ON DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that
indemnification of directors, officers, employees and other agents of a
corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, may be provided by such
corporation.
Our certificate of incorporation includes provisions eliminating the
personal liability of our directors for monetary damages resulting from breaches
of their fiduciary duty except, in accordance with the Delaware General
Corporation Law,
- for any breach of the director's duty of loyalty to us or
our stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- where the liability arises from an unlawful payment of a
dividend or an unlawful stock purchase or redemption by us which was
approved by the directors for whom liability is sought, or
- with respect to any transaction from which the director derived
an improper personal benefit.
Our by-laws provide indemnification to directors, officers, employees and
agents, including against claims brought under state or Federal securities laws,
to the full extent allowable under Delaware law. We also have entered into
indemnification agreements with our directors and executive officers providing,
among other things, that we will provide defense costs against any such claim,
subject to reimbursement in certain events. We also maintain a directors and
officers liability insurance policy in a coverage amount of $3,000,000, subject
to a $200,000 deductible.
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Our common stock is the only class of our voting securities presently
outstanding. The following table sets forth information with respect to the
beneficial ownership of shares of our common stock, as of March 31, 2000, by:
- each person known by us to beneficially own 5% or more of
the outstanding shares of our common stock, based on filings with the
SEC and certain other information,
- each of our executive officers and directors, and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting and investment power. In addition, under SEC rules, a person
is deemed to be the beneficial owner of securities which may be acquired by such
person upon the exercise of options, warrants or convertible securities within
60 days from the date on which beneficial ownership is to be determined.
Except as otherwise indicated in the notes to the following table,
- we believe that all shares are beneficially owned, and investment and
voting power is held by, the persons named as owners, and
- the address for each beneficial owner listed in the table is
Vizacom Inc., Glenpointe Centre East, 300 Frank W. Burr Boulevard -
7th Floor, Teaneck, New Jersey 07666.
<TABLE>
<CAPTION>
Amount and Nature
of Common Stock Percentage of Shares
Name of Beneficial Owner Beneficially Owned Beneficial Owned
- ------------------------ ------------------ --------------------
<S> <C> <C> <C>
Vincent DiSpigno. . . . . . . . . . . . . . . . . . . . 849,583 (1) 7.1
David N. Salav. . . . . . . . . . . . . . . . . . . . . 849,583 (2) 7.1
Mark E. Leininger . . . . . . . . . . . . . . . . . . . 607,339 (3) 4.9
Marc E. Jaffe . . . . . . . . . . . . . . . . . . . . . 239,892 (4) 2.0
Neil M. Kaufman . . . . . . . . . . . . . . . . . . . . 196,316 (5) 1.6
Norman W. Alexander . . . . . . . . . . . . . . . . . . 131,488 (6) 1.1
Alan W. Schoenbart. . . . . . . . . . . . . . . . . . . 91,666 (7) *
Rand Schulman . . . . . . . . . . . . . . . . . . . . . 50,000 (8) *
Werner G. Haase . . . . . . . . . . . . . . . . . . . . 8,333 (9) *
All officers and directors as a group (6 persons) . . . 3,024,200 (10) 23.1
- ----------
<FN>
* Less than 1.0%.
</FN>
</TABLE>
(1) Includes (a) 83,333 shares of our common stock issuable upon conversion
of the principal amount of our convertible promissory note held by Mr.
DiSpigno in the principal amount of $250,000 and (b) 31,250 shares of our
common stock issuable upon exercise of an option granted to Mr. DiSpigno
under our 1994 Incentive Plan which are exercisable within the next 60
days. Does not include (a)additional shares of our common stock that may
become issuable under the convertible promissory note held by Mr. DiSpigno
with respect to accrued and unpaid interest, (b) 93,750 shares of our
common stock issuable upon exercise of an option granted to Mr. DiSpigno
under our 1994 Incentive Plan which are not exercisable within the next 60
days or (c) any additional shares of our common stock that may be issued to
Mr. DiSpigno under the PWR merger agreement if our price falls below $1.00
per share for any 30 day period prior to March 27, 2001.
(2) Includes (a) 83,333 shares of our common stock issuable upon conversion
of the principal amount of our convertible promissory note held by Mr.
Salav in the principal amount of $250,000, (b) 31,250 shares of our common
stock issuable upon exercise of an option granted to Mr. Salav under our
1994 Incentive Plan which are exercisable within the next 60 days. Does not
include (a) additional shares of our common stock that may become issuable
under the convertible promissory note held by Mr. Salav with respect to
accrued and unpaid interest and (b) 93,750 shares of our common stock
issuable upon exercise of an option granted to Mr. Salav under our 1994
Incentive Plan which are not exercisable within the next 60 days or (c) any
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<PAGE>
additional shares of our common stock that may be issued to Mr. Salav under
the PWR merger agreement if our price falls below $1.00 per share for any
30 day period prior to March 27, 2001.
(3) Represents (a) 3,333 shares of our common stock held by Mr. Leininger
and his spouse as joint tenants and (b) 404,006 shares of common stock
issuable upon exercise of options granted to Mr. Leininger under our
various stock plans which are exercisable within the next 60 days. Does not
include 222,244 shares of common stock issuable upon exercise of options
granted to Mr. Leininger under our various stock plans which are not
exercisable within the next 60 days.
(4) Includes 186,559 shares of our common stock issuable upon exercise of
options granted to Mr. Jaffe under our various stock plans which are
exercisable within the next 60 days. Does not include 75,941 shares of
common stock issuable upon exercise of options granted to Mr. Jaffe under
our various stock plans which are not exercisable within the next 60 days.
The address for Mr. Jaffe is c/o Double Impact, 386 Park Avenue South -
Suite 1900, New York, New York 10016.
(5) Includes 139,578 shares of our common stock issuable upon exercise of
options granted to Mr. Kaufman under our various stock plans which are
exercisable within the next 60 days. Does not include options to purchase
165,422 shares of common stock granted to Mr. Kaufman under our various
stock plans which are not exercisable within the next 60 days. The address
for Mr. Kaufman is c/o Kaufman & Moomjian, LLC, 50 Charles Lindbergh
Boulevard, Suite 206, Mitchel Field, New York 11553.
(6) Includes (a) 8,333 shares of our common stock owned of record by Mr.
Alexander's spouse and (b) 92,184 shares of common stock issuable upon
exercise of options granted Mr. Alexander under our various stock plans
which are exercisable within the next 60 days. Does not include 64,899
shares of common stock issuable upon exercise of options granted to Mr.
Alexander under our various stock plans which are not exercisable within
the next 60 days. The address for Mr. Alexander is Burnside, Church Walk,
Marholm, Peterborough, PE 67H2 England.
(7) Represents 91,666 shares of our common stock issuable upon exercise of
options granted to Mr. Schoenbart which are exercisable within the next 60
days. Does not include options to purchase 98,334 shares of common stock
granted to Mr. Schoenbart which are not exercisable within the next 60
days.
(8) Represents 50,000 shares of our common stock issuable upon exercise of
an option granted to Mr. Schulman under our 1994 Incentive Plan which are
exercisable within the next 60 days. Does not include 150,000 shares of our
common stock issuable upon exercise of an option granted to Mr. Schulman
under our 1994 Incentive Plan which are not exercisable within the next 60
days.
(9) Represents 8,333 shares of our common stock issuable upon exercise of
options granted to Mr. Haase under our Outside Director and Advisor Stock
Option Plan which are exercisable within the next 60 days. Does not include
options to purchase 16,667 shares of common stock granted to Mr. Haase
under our Outside Director and Advisor Stock Option Plan which are not
exercisable within the next 60 days. The address for Mr. Haase is c/o
Xceed Inc., 488 Madison Avenue, New York, New York 10022.
(10) Includes (a) the aggregate 11,666 shares of our common stock held
jointly with, or individually, by spouses of our officers and directors,
and (b) an aggregate 1,201,492 shares of our common stock issuable upon
conversion of promissory notes and the exercise of the options discussed in
notes (1) through (9) above which are convertible or exercisable within the
next 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On January 28, 1998, the compensation committee of our board of directors
determined to compensate Marc E. Jaffe for his services as our chairman of the
board of directors at the rate of $5,000 per month, payable $2,500 in the month
of service and $2,500 twelve months after such initial payment. During 1998, we
paid Mr.
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Jaffe $30,000 under this arrangement and, pursuant to a letter agreement,
dated December 17, 1998, we issued to Mr. Jaffe 30,000 shares of our common
stock in satisfaction of $22,500 of our obligations under such January 28, 1998
compensation arrangement. On January 13, 1999, the Compensation Committee of our
Board of Directors determined to compensate Marc E. Jaffe for his services as
Chairman of the Board of Directors for the 1999 calendar year at the rate of
$5,000 per month. In November 1999, we agreed to pay Mr. Jaffe an additional
$3,000 per month for November and December 1999 for additional services we have
requested that he perform.
The following directors and executive officers purchased the number of
shares of our common stock set forth below in our May 1998 private placement,
each at $1.20 per share.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Norman W. Alexander. . . . . . . 8,333
Marc E. Jaffe. . . . . . . . . . 23,333
Mark E. Leininger. . . . . . . . 3,333
</TABLE>
Mr. Leininger purchased such 3,333 shares of our common stock with spouse
as joint tenants. In addition, Mr. Alexander's spouse also purchased 8,333
shares of our common stock in the May 1998 private placement.
During 1999, we incurred approximately $400,000 in legal fees to Kaufman &
Moomjian, LLC. During 1998, we incurred approximately $390,000 in legal fees to
Kaufman & Moomjian, LLC and its predecessor. Neil M. Kaufman, one of our
directors, is a member of Kaufman & Moomjian, LLC, and was a member of the
predecessor firm. In May 1998, this predecessor firm was issued 11,904 shares of
our common stock in partial satisfaction of outstanding legal fees equal in
amount to the market value of such shares, and these shares have been assigned
to Mr. Kaufman. In August 1999, we issued 50,000 shares of our common stock to
members of Kaufman & Moomjian, LLC in satisfaction of $100,000 of outstanding
legal fees due Kaufman & Moomjian, LLC.
Effective July 17, 1998, we adopted a repricing program under which we
offered to each optionee granted one or more options under any of our various
stock plans who, as of July 17, 1998, was either an employee or a director of
our company, the right to exchange each outstanding option granted to the
eligible optionee under our various stock plans, for the issuance of two
options, the first such option, or new option, entitling the eligible optionee
to purchase up to 75% of the number of shares of our common stock that were
issuable under each eligible option so exchanged, at an exercise price per share
equal to $1.375, the closing per share price on July 17, 1998, as reported by
The Nasdaq Stock Market, Inc., and the second such option, or non-repriced
option, entitling the eligible optionee to purchase up to 25% of the number of
shares of our common stock that were issuable under the eligible option so
exchanged, at an exercise price per share equal to the exercise price per share
or eligible option so exchanged. To the extent the eligible option so exchanged
was exercisable as of July 17, 1998, the non-repriced option shall be
exercisable and, where the number of shares exercisable under the eligible
option so exchanged as of July 17, 1998 exceeded the number of shares issuable
under the non-repriced option, any such options shall be immediately exercisable
under the new option. Further, to the extent the eligible option so exchanged
was not exercisable as of July 17, 1998, the non-repriced option shall first
become exercisable in accordance with the earliest dates set forth in the
eligible option so exchanged for the exercisability of shares issuable under the
eligible option so exchanged, and the shares of our common stock issuable under
the new option became exercisable on July 17, 1999, with respect to 25% of the
total number of shares of our common stock issuable under the new option, and
will become exercisable on each of July 17, 2000, 2001, 2002, with respect to an
additional 25% of the total number of shares of our common stock issuable under
the new option.
In addition, each new option has a term expiring at the close of business
on July 16, 2008 and shall be deemed granted under such of our various stock
plans under which the eligible option was originally granted and the non-
repriced option shall be deemed granted under such of the plans under which the
eligible option was originally granted. Except as otherwise noted, each of the
new option and non-repriced option shall otherwise be identical to the eligible
option so exchanged.
The creation of the 1998 repricing program was approved primarily because
of the importance to us of having meaningful equity incentives in the hands of
key officers, directors and employees. Our board of directors
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<PAGE>
and compensation committee believed that stock options which are "out of
the money" provide less compensatory incentive to an officer, director and
employee who may be considering alternative opportunities. Our board and
compensation committee decided to include directors and officers in the 1998
repricing program because of the importance of their leadership, administrative
and technical skills to the success of our business.
In connection with our 1998 repricing program, the following options held
by directors and executive officers granted under our various stock plans were
repriced each to an exercise price of $1.375 per share with a termination date
of July 16, 2008:
<TABLE>
<CAPTION>
Shares Underlying Original Original
Optionee Original Option Exercise Price Termination Date
- -------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Norman W. Alexander . . . . . . . . . . 4,688 $ 3.75 12/19/06
Norman W. Alexander . . . . . . . . . . 1,875 3.75 7/31/07
Norman W. Alexander . . . . . . . . . . 25,000 3.1875 12/15/07
Marc E. Jaffe . . . . . . . . . . . . . 938 3.75 10/31/04
Marc E. Jaffe . . . . . . . . . . . . . 4,688 3.75 8/2/05
Marc E. Jaffe . . . . . . . . . . . . . 1,875 3.75 7/31/06
Marc E. Jaffe . . . . . . . . . . . . . 1,875 3.75 7/31/07
Mark E. Jaffe . . . . . . . . . . . . . 25,000 3.1875 12/15/07
Marc E. Jaffe . . . . . . . . . . . . . 16,250 2.8125 1/27/08
Neil M. Kaufman . . . . . . . . . . . . 4,688 3.75 4/24/06
Neil M. Kaufman . . . . . . . . . . . . 4,688 3.75 12/19/06
Neil M. Kaufman . . . . . . . . . . . . 1,875 3.75 7/31/07
Mark E. Leininger . . . . . . . . . . . 3,750 3.75 7/20/05
Mark E. Leininger . . . . . . . . . . . 1,875 3.75 2/19/06
Mark E. Leininger . . . . . . . . . . . 13,125 3.75 4/24/06
Mark E. Leininger . . . . . . . . . . . 27,188 3.75 9/28/06
Mark E. Leininger . . . . . . . . . . . 56,250 3.75 2/4/07
Martin F. Schacker. . . . . . . . . . . 6,249 2.859375 12/28/07
Martin F. Schacker. . . . . . . . . . . 18,750 2.8125 1/27/08
</TABLE>
With respect to compensation paid to Mark E. Leininger in his capacity as
our employee, see "Management - Executive Compensation."
We have entered into a three year employment agreement with Mark E.
Leininger. This employment agreement provides for a base salary of $162,500 in
1999, at least $172,500 in 2000 and at least $182,500 in 2001 and annual
incentive compensation equal to 3% of our pre-tax income for the year to which
the incentive compensation relates. This agreement with Mr. Leininger also
provides for the continued payment, for a three year period, of his then current
compensation if his employment is terminated without cause. Further, this
employment agreement provides for the payment to Mr. Leininger of an amount
equal to three times his average total compensation for the five prior fiscal
years, minus $1.00, if there is a change of control of our company and Mr.
Leininger elects to terminate his employment within six months of his first
becoming aware of such change in control. This employment agreement also
contains restrictions on his engaging in competition with us for the term
thereof and for up to one year thereafter and provisions protecting our
proprietary rights and information. In October 1996, our Board of Directors
determined to pay to Mr. Leininger a bonus of $25,000 following our first
profitable fiscal quarter after the fourth quarter of 1996. This bonus has not
been paid.
In connection with our acquisition of PWR Systems, we have entered into
three year employment agreements with each of Vincent DiSpigno, one of our vice
presidents and the chief executive officer of our PWR Systems subsidiary, and
David Salav, another of our vice presidents and the president of our PWR Systems
subsidiary. Each of these agreements provides for an annual base salary of
$200,000 and $25,000 annual bonuses if PWR attains a 30% increase in revenues
over the prior year and PWR System has either at least a 20% gross margin or
$1,000,000 in net income for the subject year. Pursuant to these two employment
agreements, we expanded our board of directors and elected Messrs. DiSpigno and
Salav to the expanded board. During the term of these two
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employment agreements, we have agreed to use our best efforts to cause
their reelections to our board when their initial terms expire. These two
employment agreements also contain restriction on the employee engaging in
competition with us for the employment term and for one year thereafter and
provisions protecting our proprietary rights and information.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
Set forth below are all exhibits to this Annual Report on Form 10-KSB:
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.1 Composite of Certificate of Incorporation of the Company, as amended
to date. (Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K (Date of Report: July 1, 1999)
(Commission File Number: 1-14076), filed with the Commission on July
15, 1999.)
3.2 By-laws of the Company, as amended. (Incorporated by reference to
Exhibit 3.3 to the Company's Annual Report on Form 10-KSB
(Commission File Number: 1-14076), for the year ended December
31, 1997, filed with the Commission on April 16, 1998.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-KSB (Commission
File Number: 1-14076), for the year ended December 31, 1997,
filed with the Commission on April 16, 1998.)
10.1 Company 1994 Long Term Incentive Plan, as amended to date.
(Incorporated by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K (Date of Report: July 1, 1999) (Commission File
Number: 1-14076), filed with the Commission on July 15, 1999.)
10.2 Company Outside Director and Advisor Stock Option Plan, as amended to
date. (Incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K (Date of Report: July 1,
1999) (Commission File Number: 1-14076), filed with the Commission
on July 15, 1999.)
10.3 SPC 1989 Stock Plan. (Incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-8 (Registration
Number: 333-19509), filed with the Commission on January 10, 1997.)
10.4 SPC 1991 Stock Option Plan. (Incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-8
(Registration Number: 333-19509), filed with the Commission on
January 10, 1997.)
10.5 Form of Indemnification Agreement between the Registrant and its
executive officers and directors. (Incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on
September 21, 1995.)
10.6 Form of Underwriters' Purchase Option (Specimen). (Incorporated by
reference to Exhibit 10.18 to the Company's Annual Report on Form
10-KSB, for the year ended December 31, 1997, filed with the
Commission on April 16, 1998.)
10.7 Registration Rights Agreement, dated July 31, 1996, between the
Company and the former stockholders of Serif Inc. and Serif (Europe)
Limited. (Incorporated by reference to Exhibit 10.31 to the Company's
Current Report on Form 8-K (Date of Report: July 31, 1996)
(Commission File Number: 1-14076), filed with the Commission on August
13, 1996.)
10.8 Lease Agreement, dated September 7, 1995, between Community Towers LLC
and the Company, for facilities located at 111 North Market Street,
San Jose, California. (Incorporated by reference to Exhibit 10.22
to Software Publishing Corporation's Annual Report on Form 10-K
(Commission File Number: 0-14025), for the fiscal year ended
September 30, 1995, filed with the Commission on December 29, 1995.)
10.9 Option, dated October 23, 1997, issued to Ronald L. Altman.
(Incorporated by reference to Exhibit 10.53 to the Company's Quarterly
Report on Form 10-QSB (Commission File Number: 1-14076), for the
quarter ended September 30, 1997, filed with the Commission on
November 14, 1997.)
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10.10 Rights Agreement, dated as of March 31, 1998, between the Company
and American Stock Transfer & Trust Company. (Incorporated by
reference to Exhibit 10.51 to the Company's Annual Report on Form
10-KSB (Commission File Number: 1-14076), for the year ended
December 31, 1997, filed with the Commission on April 16, 1998.)
10.11 Warrant, dated April 7, 1998, registered in the name of Boru
Enterprises, Inc., with respect to 50,000 shares of Common Stock
(before giving effect to the Company's one-for-three reverse stock
split made effective May 27, 1998). (Incorporated by reference to
Exhibit 10.54 to the Company's Quarterly Report on Form 10-QSB
(Commission File Number: 1-14076), for the quarter ended March 31,
1998, filed with the Commission on May 13, 1998.)
10.12 Stock Exchange Agreement, dated December 15, 1998, between the Company
and Seafish Partners. (Incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K (Date of Report: December 15,
1998) (Commission File Number: 1-14076), filed with the
Commission on December 16, 1998.)
10.13 Letter Agreement, dated January 4, 1999, between the Company and
Seafish Partners. (Incorporated by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K (Date of Report: January 11,
1999) (Commission File Number: 1-14076), filed with the Commission
on January 20, 1999.)
10.14 Consulting Agreement between the Company and Target Capital Corp.
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K (Date of Report: January 11, 1999) (Commission
File Number: 1-14076), filed with the Commission on January 20,
1999.)
10.15 Consulting Agreement between the Company and Michel Ladovitch.
(Incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Date of Report: January 11, 1999)
(Commission File Number: 1-14076), filed with the Commission on
January 20, 1999.)
10.16 Warrant Certificate, with respect to 520,000 shares of Common
Stock, registered in the name of Target Capital Corp. (Incorporated
by reference to Exhibit 10.5 to the Company's Current Report on Form
8-K (Date of Report: January 11, 1999) (Commission File Number:
1-14076), filed with the Commission on January 20, 1999.)
10.17 Warrant Certificate, with respect to 120,000 shares of Common Stock,
registered in the name of United Krasna Organizations. (Incorporated
by reference to Exhibit 10.6 to the Company's Current Report on
Form 8-K (Date of Report: January 11, 1999) (Commission File
Number: 1-14076), filed with the Commission on January 20, 1999.)
10.18 Warrant Certificate, with respect to 260,000 shares of Common Stock,
registered in the name of Seafish Partners. (Incorporated by
reference to Exhibit 10.8 to the Company's Current Report on Form 8-K
(Date of Report: January 11, 1999) (Commission File Number:
1-14076), filed with the Commission on January 20, 1999.)
10.19 Warrant Certificate, with respect to 600,000 shares of Common Stock,
registered in the name of Regency Investment Partners. (Incorporated
by reference to Exhibit 10.7 to the Company's Current Report on Form
8-K (Date of Report: January 11, 1999) (Commission File Number:
1-14076), filed with the Commission on January 20, 1999.)
10.20 Letter Agreement, dated December 17, 1998, between the Company Marc
E. Jaffe. (Incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K (Date of Report: January 11, 1999)
(Commission File Number: 1-14076), filed with the Commission on
January 20, 1999.)
10.21 Advice of Borrowing Terms, dated December 29, 1998, between Serif
(Europe) Limited and National Westminster Bank PLC, and Mortgage
Debenture, dated October 9, 1989, between Serif (Europe) Limited
and National Westminster Bank PLC. (Incorporated by reference to
Exhibit 10.45 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1998 (Commission File Number
1-14076), filed with the Commission on April 15, 1999.)
10.22 Letter Agreement, dated April 20, 1999, between the Company
and Seafish Partners. (Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-QSB for the period
ended March 31, 1999 (Commission File Number 1-14076), filed with
the Commission on May 20, 1999.)
10.23 Agreement, dated July 1, 1999, between the Company and Seafish
Partners. (Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K (Date of Report: July 1, 1999)
(Commission File Number: 1-14076), filed with the Commission on
July 15, 1999.)
10.24 Employment Agreement, dated July 14, 1999, between Vizacom Inc.
and Mark E. Leininger. (Incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K (Date of
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Report: July 1, 1999) (Commission File Number: 1-14076), filed with
the Commission on July 15, 1999.)
10.25 Agreement and Plan of Merger, dated as of February 15, 2000, among
Vizacom Inc., RCAC Acquisition Corp., Renaissance Computer Art
Center, Inc. and the former stockholders of Renaissance
Computer Art Center, Inc. (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K (Date of Report:
February 15, 2000) (Commission File Number: 1-14076), filed with the
Commission on February 22, 2000.)
10.26 Escrow Agreement, dated as of February 15, 2000, among Vizacom Inc.,
Renaissance Computer Art Center Inc., the former stockholders of
Renaissance Computer Art Center, Inc., Andrew Edwards and Kaufman
& Moomjian, LLC, as escrow agent. (Incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K (Date of
Report: February 15, 2000) (Commission File Number: 1-14076),
filed with the Commission on February 22, 2000.)
10.27 Form of Lock-Up Agreement. (Incorporated by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K (Date of Report:
February 15, 2000) (Commission File Number: 1-14076), filed with
the Commission on February 22, 2000.)
10.28 Registration Rights Agreement, dated as of February 15, 2000, among
Vizacom Inc., and each of the former stockholders of Renaissance
Computer Art Center, Inc. (Incorporated by reference to Exhibit
10.4 to the Company's Current Report on Form 8-K (Date of Report:
February 15, 2000) (Commission File Number: 1-14076), filed with
the Commission on February 22, 2000.)
10.29 Employment Agreement, dated as of February 15, 2000, by and between
Vizacom Inc. and Andrew Edwards. (Incorporated by reference to
Exhibit 10.5 to the Company's Current Report on Form 8-K (Date of
Report: February 15, 2000) (Commission File Number: 1-14076), filed
with the Commission on February 22, 2000.)
10.30 Line of Credit Facility Agreement, dated January 8, 2000, between
Vizacom Inc. and Churchill Consulting. (Incorporated by reference
to Exhibit 10.6 to the Company's Current Report on Form 8-K (Date of
Report: February 15, 2000) (Commission File Number: 1-14076), filed
with the Commission on February 22, 2000.)
10.31 Letter Agreement, dated March 15, 2000, by and between Vizacom Inc.
and Churchill Consulting. (Incorporated by reference to Exhibit
10.7 to the Company's Current Report on Form 8-K (Date of Report:
March 9, 2000) (Commission File Number: 1-14076), filed with
the Commission on March 21, 2000.)
10.32 Line of Credit Note, dated January 8, 2000, in the principal amount
of $1,000,000 and payable to Churchill Consulting. (Incorporated
by reference to Exhibit 10.7 to the Company's Current Report on Form
8-K (Date of Report: February 15, 2000) (Commission File Number:
1-14076), filed with the Commission on February 22, 2000.)
10.33 Warrant Certificate, dated February 17, 2000, registered in the name
of Churchill Consulting. (Incorporated by reference to Exhibit 10.8 to
the Company's Current Report on Form 8-K (Date of Report: February
15, 2000) (Commission File Number: 1-14076), filed with the
Commission on February 22, 2000.)
10.34 Stock Acquisition Agreement, dated March 9, 2000, among Vizacom Inc.
and the former stockholders of Junction 15 Limited.
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K (Date of Report: March 9, 2000) (Commission
File Number: 1-14076), filed with the Commission on March 21,
2000.)
10.35 Form of Lock-Up Agreement for use by directors of Junction 15 Limited
at the time of the acquisition. (Incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K (Date of
Report: March 9, 2000) (Commission File Number: 1-14076), filed
with the Commission on March 21, 2000.)
10.36 Form of Lock-Up Agreement for use by non-directors of Junction
15 Limited at the time of the acquisition. (Incorporated by
reference to Exhibit 10.3 to the Company's Current Report on Form
8-K (Date of Report: March 9, 2000) (Commission File Number: 1-14076),
filed with the Commission on March 21, 2000.)
10.37 Registration Rights Agreement, dated as of March 9, 2000, among
Vizacom Inc., and each of the former shareholders of Junction 15
Limited. (Incorporated by reference to Exhibit 10.4 to the Company's
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Current Report on Form 8-K (Date of Report: March 9, 2000)
(Commission File Number: 1-14076), filed with the Commission
on March 21, 2000.)
10.38 Agreement and Plan of Merger, dated as of February 28, 2000, among
Vizacom Inc., PWR Acquisition Corp., PC Workstation Rentals, Inc.,
d/b/a PWR Systems and the stockholders of PC Workstation Rentals, Inc.
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K (Date of Report: March 27, 2000) (Commission File
Number: 1-14076), filed with the Commission on April 2, 2000.)
10.39 Amendment No. 1 to Merger Agreement, dated March 27, 2000,
among Vizacom Inc., PWR Acquisition Corp., PC Workstation Rentals,
Inc., d/b/a PWR Systems and the shareholders of PC Workstation
Rentals, Inc. (Incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K (Date of Report: March 27, 2000)
(Commission File Number: 1-14076), filed with the Commission on
April 2, 2000.)
10.40 Letter Agreement, dated March 27, 2000 among Vizacom Inc., PWR
Acquisition Corp., PC Workstation Rentals, Inc., d/b/a PWR Systems and
the stockholders of PC Workstation Rentals, Inc. (Incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
(Date of Report: March 27, 2000) (Commission File Number: 1-14076),
filed with the Commission on April 2, 2000.)
10.41 Convertible Note, dated March 27, 2000, of Vizacom Inc. in the
principal amount of $250,000 and payable to Vincent DiSpigno.
(Incorporated by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K (Date of Report: March 27, 2000) (Commission
File Number: 1-14076), filed with the Commission on April 2, 2000.)
10.42 Convertible Note, dated March 27, 2000, of Vizacom Inc. in the
principal amount of $250,000 and payable to David Salav.
(Incorporated by reference to Exhibit 10.4 to the Company's Current
Report on Form 8-K (Date of Report: March 27, 2000) (Commission File
Number: 1-14076), filed with the Commission on April 2, 2000.)
10.43 Lock-Up Agreement, dated March 27, 2000, between Vizacom Inc. and
Vincent DiSpigno. (Incorporated by reference to Exhibit
10.5 to the Company's Current Report on Form 8-K (Date of Report:
March 27, 2000) (Commission File Number: 1-14076), filed with the
Commission on April 2, 2000.)
10.44 Lock-Up Agreement, dated March 27, 2000, between Vizacom Inc. and
David Salav. (Incorporated by reference to Exhibit 10.6 to the
Company's Current Report on Form 8-K (Date of Report: March 27,
2000) (Commission File Number: 1-14076), filed with the Commission
on April 2, 2000.)
10.45 Registration Rights Agreement, dated March 27, 2000, among Vizacom
Inc., Vincent DiSpigno and David Salav. (Incorporated by
reference to Exhibit 10.7 to the Company's Current Report on Form
8-K (Date of Report: March 27, 2000) (Commission File Number:
1-14076), filed with the Commission on April 2, 2000.)
10.46 Employment Agreement, dated March 27, 2000, between Vizacom Inc.
and Vincent DiSpigno. (Incorporated by reference to Exhibit 10.8 to
the Company's Current Report on Form 8-K (Date of Report: March 27,
2000) (Commission File Number: 1-14076), filed with the Commission
on April 2, 2000.)
10.47 Employment Agreement, dated March 27, 2000, between Vizacom Inc.
and David Salav. (Incorporated by reference to Exhibit 10.9 to the
Company's Current Report on Form 8-K (Date of Report: March 27,
2000) (Commission File Number: 1-14076), filed with the Commission
on April 2, 2000.)
10.48 Form of Promissory Note, dated March 27, 2000, of PC Workstation
Rentals, Inc. in the aggregate principal amount of $888,638 and
payable to Vincent DiSpigno and David Salav. (Incorporated by
reference to Exhibit 10.10 to the Company's Current Report on
Form 8-K (Date of Report: March 27, 2000) (Commission File Number:
1-14076), filed with the Commission on April 2, 2000.)
10.49 Consulting Agreement, dated as of January 28, 2000, between Vizacom
Inc., Arel AMG, Inc., and Charles S. Lazar.
10.50 Warrant Certificate, with respect to 100,000 shares of our common
stock, registered in the name of Arel AMG, Inc.
10.51 Warrant Certificate, with respect to 40,000 shares of our common
stock, registered in the name of Arel AMG, Inc.
10.52 Warrant Certificate, with respect to 70,000 shares of our common
stock, registered in the name of Arel AMG, Inc.
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10.53 Warrant Certificate, with respect to 90,000 shares of our common
stock, registered in the name of Arel AMG, Inc.
10.54 Warrant Certificate, with respect to 50,000 shares of our
common stock, registered in the name of Arel AMG, Inc.
10.55 Warrant Certificate, with respect to 150,000 shares of our
common stock, registered in the name of Arel AMG, Inc.
10.56 Warrant Certificate, with respect to 150,000 shares of our common
stock, registered in the name of Arel AMG, Inc.
10.57 Distribution and Marketing Agreement, dated July 27, 1999, between
Nova Development Corporation and all Serif subsidiaries of
Vizacom Inc.
21 Subsidiaries of the Company.
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Ernst & Young.
23.3 Consent of Silver & Levene.
24 Powers of Attorney (set forth on the signature page of this Annual
Report on Form 10-KSB).
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
On December 29, 1999, we filed a Current Report on Form 8-K (Date of
Report: December 23, 1999) with the Commission, as an Item 5 disclosure, setting
forth a revised description of our business and revised risk factors that
investors should take into consideration when making a determination to make an
investment in our securities.
On February 22, 2000, we filed a Current Report on Form 8-K (Date of
Report: February 15, 2000) with the Commission reporting, as an Item 2
disclosure, our acquisition of Renaissance Multimedia. In this Form 8-K we noted
that financial statements of Renaissance Multimedia and other pro forma
information would be provided in an amendment to this Form 8-K. Such financial
statements are included in this Annual Report on Form 10-KSB on pages F-28
through F-36 and we will file an amendment to the Form 8-K to incorporate by
reference such Renaissance Multimedia financial statements into the Form 8-K. In
addition, pro forma information concerning us, Renaissance Multimedia, Junction
15 and PWR Systems is included in the "Recent Events" section of Item 1 of this
Form 10-KSB and the amendment to the Form 8-K will incorporate by reference such
pro forma information by reference to this Form 10-KSB.
On March 3, 2000, we filed a Current Report on Form 8-K (Date of Report:
February 28, 2000) with the Commission reporting, as an Item 5 disclosure, our
entering into an agreement to acquire PWR Systems.
On March 21, 2000, we filed a Current Report on Form 8-K (Date of Report:
March 9, 2000) with the Commission reporting, as an Item 2 disclosure, our
acquisition of Junction 15. In this Form 8-K we noted that financial statements
of Junction 15 and other pro forma information would be provided in an amendment
to this Form 8-K. Such financial statements are included in this Annual Report
on Form 10-KSB on pages F-37 through F- 50 and we will file an amendment to the
Form 8-K to incorporate by reference such Junction 15 financial statements into
the Form 8-K. In addition, pro forma information concerning us, Renaissance
Multimedia, Junction 15 and PWR Systems is included in the "Recent Events"
section of Item 1 of this Form 10-KSB and the amendment to the Form 8-K will
incorporate by reference such pro forma information by reference to this Form
10-KSB.
On April 2, 2000, we filed a Current Report on Form 8-K (Date of Report:
March 27, 2000) with the Commission reporting, as an Item 2 disclosure, our
acquisition of PWR Systems. In this Form 8-K we noted that financial statements
of PWR Systems and other pro forma information would be provided in an amendment
to this Form 8-K. Such financial statements are included in this Annual Report
on Form 10-KSB on pages F-51 through F- 64 and we will file an amendment to the
Form 8-K to incorporate by reference such PWR Systems financial statements into
the Form 8-K. In addition, pro forma information concerning us, Renaissance
Multimedia, Junction 15 and PWR Systems is included in the "Recent Events"
section of Item 1 of this Form 10-KSB and the amendment to the Form 8-K will
incorporate by reference such pro forma information by reference to this Form
10-KSB.
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Index to Financial Statements
VIZACOM INC.:
Independent Auditors' Reports. . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet at December 31, 1999. . . . . . . . . . . . . . F-4
Consolidated Statements of Operations for the years
ended December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1999 and 1998. . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-8
RENAISSANCE COMPUTER ART CENTER, INC., d/b/a RENAISSANCE MULTIMEDIA:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-28
Balance Sheet at December 31, 1999 . . . . . . . . . . . . . . . . . . . . F-29
Statement of Operations and Retained Earningsfor the year
ended December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Statement of Cash Flows for the year ended December 31, 1999 . . . . . . . F-31
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-32
JUNCTION 15 LIMITED:
Directors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-37
Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39
Profit and Loss Account for the year ended 31 December 1999. . . . . . . . F-40
Balance Sheet as at December 31, 1999. . . . . . . . . . . . . . . . . . . F-41
Cash Flow Statement for the year ended 31 December 1999 . . . . . . . . . F-42
Notes to the Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . F-43
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . . . F-44
P. C. WORKSTATION RENTALS, INC., d/b/a PWR SYSTEMS, AND STORAGELAND, INC.:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . F-51
Combined Balance Sheets at December 31, 1999 and 1998. . . . . . . . . . . F-52
Combined Statement of Operations and Retained Earnings
for the years ended December 31, 1999 and 1998. . . . . . . . . . . . . . F-53
Statements of Combined Cash Flows for the years ended
December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . . . . . . F-54
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . F-55
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Vizacom Inc.
Teaneck, New Jersey
We have audited the consolidated balance sheet of Vizacom Inc. as of December
31, 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the two-year period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statements of Serif (Europe) Limited, a wholly owned subsidiary, which
statements reflect total assets and net sales constituting 34.5% and 61.9% of
the related consolidated totals for 1999 and net sales constituting 50.9% for
1998. Those financial statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to the amounts
included for Serif (Europe) Limited, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements enumerated above present fairly, in all material respects,
the consolidated financial position of Vizacom Inc. as of December 31, 1999, and
the consolidated results of their operations and their consolidated cash flows
for each of the years in the two-year period ended December 31, 1999 in
conformity with generally accepted accounting principles.
As described in Note 8, the Company has applied to enter into a closing
agreement with the Internal Revenue Service with respect to dual consolidated
losses previously utilized by a wholly owned subsidiary of the Company, Software
Publishing Corporation ("SPC"). Such closing agreement, if not consummated, will
require the Company to recognize a tax of approximately $8 million on
approximately $24.5 million of SPC's previous dual consolidated losses.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
March 27, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Serif (Europe) Limited
We have audited the balance sheet of Serif (Europe) Limited as of December 31,
1999 and 1998, and the related statements of operations, cash flows and
shareholders' equity for each of the two years in the period ended December 31,
1999. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Serif (Europe) Limited at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1999, in conformity
with United Kingdom generally accepted accounting principles.
United Kingdom accounting principles vary in certain material respects from
accounting principles generally accepted in the United States. The application
of the latter would not have materially affected the determination of
shareholders' equity and financial position as of December 31, 1999 and 1998 and
the determination of net profit for the two years ended December 31, 1999.
/s/ Ernst & Young
Ernst & Young
Nottingham, England
March 27, 2000
F-3
<PAGE>
VIZACOM INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . $ 1,730,495
Marketable securities . . . . . . . . . . . . . . . . . 2,746,678
Receivables
Trade accounts, less allowances of $434,290. . . . . 558,550
Other. . . . . . . . . . . . . . . . . . . . . . . . 88,842
Notes. . . . . . . . . . . . . . . . . . . . . . . . 86,018
Inventories. . . . . . . . . . . . . . . . . . . . . . . 1,457,604
Prepaid expenses and other current assets. . . . . . . . 526,552
--------------
Total current assets . . . . . . . . . . . . . . 7,194,739
Property and equipment, net. . . . . . . . . . . . . . . . . 828,108
Goodwill, net of accumulated amortization of $256,066. . . . 118,665
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . 259,838
Deferred consulting costs. . . . . . . . . . . . . . . . . . 1,269,859
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 803,762
--------------
Total assets . . . . . . . . . . . . . . . . . . $ 10,474,971
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 4,111,748
Accrued liabilities. . . . . . . . . . . . . . . . . . . 1,816,744
Value-added taxes payable. . . . . . . . . . . . . . . . 393,927
Current portion of capital lease obligations . . . . . . 63,792
Current portion of long-term debt. . . . . . . . . . . . 155,554
-------------
Total current liabilities. . . . . . . . . . . . 6,541,765
Capital lease obligations, less current portion. . . . . . . 98,265
Long-term debt, less current maturities. . . . . . . . . . . 100,410
-------------
Total liabilities. . . . . . . . . . . . . . . . 6,740,440
-------------
Commitments and contingencies
Stockholders' equity:
Serial Preferred Stock, authorized 1,939,480 shares,
par value $.001 per share
Junior Participating Preferred Stock, Series A,
100,000 shares authorized, none issued and
outstanding . . . . . . . . . . . . . . . . . . . --
Class B Voting Preferred Stock, Series A, 60,520
shares authorized, none issued and outstanding . . . . --
Common stock, par value $.001 per share, 60,000,000
shares authorized; 7,235,578 shares issued . . . . . . 7,236
Additional paid-in capital . . . . . . . . . . . . . . . 49,851,699
Accumulated deficit. . . . . . . . . . . . . . . . . . . (47,864,635)
Accumulated other comprehensive income . . . . . . . . . 1,750,626
Treasury stock, 3,095 shares, at cost. . . . . . . . . . (10,395)
--------------
Total stockholders' equity . . . . . . . . . . . 3,734,531
--------------
Total liabilities and stockholders' equity . . . $ 10,474,971
==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VIZACOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,891,357 $ 18,271,733
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . 6,371,106 3,709,245
------------- -------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . 13,520,251 14,562,488
Selling, general and administrative expenses . . . . . . . . . . 17,175,520 13,480,956
Product development. . . . . . . . . . . . . . . . . . . . . . . 1,027,447 1,266,163
Amortization of goodwill and purchased technology. . . . . . . . 2,219,363 2,377,282
Unrealized holding gain on marketable securities . . . . . . . . (322,652) (90,000)
Realized gain on marketable securities . . . . . . . . . . . . . (642,444) --
Interest and other income, net of interest
expense of $41,622 and $49,085. . . . . . . . . . . . . . . . (59,503) (94,739)
------------- -------------
19,397,731 16,939,662
------------- -------------
Loss before income taxes . . . . . . . . . . . . . . . . . . . . (5,877,480) (2,377,174)
Income taxes (benefit) . . . . . . . . . . . . . . . . . . . . . (250,978) 29,541
------------- -------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,626,502) $ (2,406,715)
Dividends on Series A and Series C Preferred Stock . . . . . . . (56,641) --
------------- -------------
Net loss attributable to common stockholders . . . . . . . . . . $ (5,683,143) $ (2,406,715)
============= =============
Loss per common share:
Net loss per common share - basic and diluted . . . . . . . $ (.95) $ (.65)
Weighted average number of common shares outstanding - basic
and diluted. . . . . . . . . . . . . . . . . . . . . . . 5,996,507 3,676,820
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VIZACOM INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock
----------------------------------------
Class A Class C Common Stock
------------------- ------------------ ------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 . . . . . . . . . . . . . -- $ -- -- $ -- 3,003,804 $ 3,004
Issuance of common stock in payment of
previously established liabilities . . . . . . . . . -- -- -- -- 58,585 59
Issuance of common stock and warrants in
payment of liabilities for services rendered . . . . -- -- -- -- 143,333 143
Issuance of warrants for services rendered . . . . . . -- -- -- -- -- --
Acquisition of treasury shares . . . . . . . . . . . . -- -- -- -- -- --
Adjustment of common stock to reflect
payment of fractional shares in cash in
connection with reverse stock split. . . . . . . . . -- -- -- -- (37) 0
Sale of common stock-net . . . . . . . . . . . . . . . -- -- -- -- 1,877,968 1,878
Issuance of Class A preferred stock. . . . . . . . . . 930 930,000 -- -- -- --
Net loss . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
---- -------- ---- -------- --------- -------
BALANCE AT DECEMBER 31, 1998 . . . . . . . . . . . . . 930 $930,000 -- $ -- 5,083,653 $ 5,084
COMPREHENSIVE INCOME (LOSS):
Net loss . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
Unrealized holding gain. . . . . . . . . . . . . . . . -- -- -- -- -- --
Currency translation adjustment. . . . . . . . . . . . -- -- -- -- -- --
Total comprehensive loss . . . . . . . . . . . . . . . -- -- -- -- -- --
Exchange of Class A preferred stock for Class
C preferred stock and warrants, less related
costs. . . . . . . . . . . . . . . . . . . . . . . . (930) (930,000) 930 930,000 -- --
Redemption of preferred stock. . . . . . . . . . . . . -- -- (930) (930,000) -- --
Dividends paid on preferred stock. . . . . . . . . . . -- -- -- -- -- --
Common stock issued on exercise of warrants
and options. . . . . . . . . . . . . . . . . . . . . -- -- -- -- 217,835 218
Issuance of options and warrants for services. . . . . -- -- -- -- -- --
Sale of common stock in private placements,
net. . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 1,804,066 1,804
Common stock issued for payment of legal
services . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 50,000 50
Common stock issued in settlement of
vendor and licensing liabilities . . . . . . . . . . -- -- -- -- 80,024 80
---- -------- ---- -------- --------- -------
BALANCE AT DECEMBER 31, 1999 . . . . . . . . . . . . . -- $ -- -- $ -- 7,235,578 $ 7,236
==== ======== ==== ======== ========= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Paid-in Accumulated Comprehensive Treasury Stockholders'
Capital Deficit Income (Loss) Stock Equity
-------------- ------------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 . . . . . . . . . . . . . $ 42,971,820 $(39,831,418) $ -- $ -- $ 3,143,406
Issuance of common stock in payment of
previously established liabilities . . . . . . . . . 117,107 -- -- -- 117,166
Issuance of common stock and warrants in
payment of liabilities for services rendered . . . . 186,607 -- -- -- 186,750
Issuance of warrants for services rendered . . . . . . 701,206 -- -- -- 701,206
Acquisition of treasury shares . . . . . . . . . . . . -- -- -- (10,395) (10,395)
Adjustment of common stock to reflect
payment of fractional shares in cash in
connection with reverse stock split. . . . . . . . . -- -- -- -- 0
Sale of common stock-net . . . . . . . . . . . . . . . 1,408,747 -- -- -- 1,410,625
Issuance of Class A preferred stock. . . . . . . . . . -- -- -- -- 930,000
Net loss . . . . . . . . . . . . . . . . . . . . . . . -- (2,406,715) -- -- (2,406,715)
------------ ------------- ------------ --------- --------------
BALANCE AT DECEMBER 31, 1998 . . . . . . . . . . . . . $ 45,385,487 $(42,238,133) $ -- $(10,395) $ 4,072,043
COMPREHENSIVE INCOME (LOSS):
Net loss . . . . . . . . . . . . . . . . . . . . . . . -- (5,626,502) -- -- --
Unrealized holding gain. . . . . . . . . . . . . . . . -- -- 1,753,929 -- --
Currency translation adjustment. . . . . . . . . . . . -- -- (3,303) -- --
------------- -------------
Total comprehensive loss . . . . . . . . . . . . . . . -- (5,626,502) 1,750,626 -- (3,875,876)
------------- -------------
Exchange of Class A preferred stock for Class
C preferred stock and warrants, less related
costs. . . . . . . . . . . . . . . . . . . . . . . . (33,905) -- -- -- (33,905)
Redemption of preferred stock. . . . . . . . . . . . . -- -- -- -- (930,000)
Dividends paid on preferred stock. . . . . . . . . . . (56,641) -- -- -- (56,641)
Common stock issued on exercise of warrants
and options. . . . . . . . . . . . . . . . . . . . . 52,155 -- -- -- 52,373
Issuance of options and warrants for services. . . . . 996,954 -- -- -- 996,954
Sale of common stock in private placements,
net. . . . . . . . . . . . . . . . . . . . . . . . . 3,111,080 -- -- -- 3,112,884
Common stock issued for payment of legal
services . . . . . . . . . . . . . . . . . . . . . . 181,200 -- -- -- 181,250
Common stock issued in settlement of
vendor and licensing liabilities . . . . . . . . . . 215,369 -- -- -- 215,449
------------ ------------- ------------ --------- -------------
BALANCE AT DECEMBER 31, 1999 . . . . . . . . . . . . . $ 49,851,699 $(47,864,635) $ 1,750,626 $(10,395) $ 3,734,531
============ ============= ============ ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
VIZACOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (5,626,502) $ (2,406,715)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization. . . . . . . . . . . . . 2,907,758 2,570,924
Provision for doubtful accounts. . . . . . . . . . . . 85,006 665,000
Unrealized holding gain on trading securities. . . . . (322,652) (90,000)
Gains on sale of fixed assets. . . . . . . . . . . . . -- (9,409)
Gain realized on available-for-sale securities. . . . (642,444) 173,600
Common stock and stock options issued for legal and
licensing matters. . . . . . . . . . . . . . . . . . 126,712 --
Changes in assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . . 331,641 (1,128,449)
Inventories . . . . . . . . . . . . . . . . . . . . (775,780) (139,368)
Prepaid expenses and other current assets . . . . . 260,748 (354,677)
Other assets. . . . . . . . . . . . . . . . . . . . (466,270) (3,778)
Accounts payable. . . . . . . . . . . . . . . . . . 918,721 586,243
Accrued liabilities . . . . . . . . . . . . . . . . 514,785 (1,359,937)
Value-added taxes payable . . . . . . . . . . . . . (415,333) --
------------- -------------
Net cash used in operating activities. . . . . (3,103,610) (1,496,566)
------------- -------------
INVESTING ACTIVITIES:
Purchase of property and equipment. . . . . . . . . . . (638,636) (103,415)
Investment in website . . . . . . . . . . . . . . . . . (268,248) --
Increase in restricted cash . . . . . . . . . . . . . . (59,838) 100,000
Collection of notes receivable. . . . . . . . . . . . . 155,613 --
Proceeds from sales of property and equipment . . . . . -- 58,480
------------- -------------
Net cash (used in) provided by investing
activities . . . . . . . . . . . . . . . . . (811,109) 55,065
------------- -------------
FINANCING ACTIVITIES:
Proceeds from sale of common stock - net. . . . . . . . 3,125,675 1,410,625
Proceeds from long-term debt. . . . . . . . . . . . . . 353,552 --
Proceeds from option and warrant exercises. . . . . . . 52,373 --
Payment of long-term debt and capital lease
obligations . . . . . . . . . . . . . . . . . . . . . (230,129) (167,834)
Payment of costs of preferred stock issuance. . . . . . (33,905) --
Purchase of treasury stock. . . . . . . . . . . . . . . -- (10,395)
------------- -------------
Net cash provided by financing activities . . 3,267,566 1,232,396
------------- -------------
(Decrease) in cash and cash equivalents . . . . . . . . (647,153) (209,105)
Cash and cash equivalents at beginning of year. . . . . 2,377,648 2,586,753
------------- -------------
Cash and cash equivalents at end of year. . . . . . . . $ 1,730,495 $ 2,377,648
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND
INVESTING ACTIVITIES:
Issuance of Class A Preferred Stock for
marketable securities. . . . . . . . . . . . . . . . $ -- $ 930,000
Redemption of Class C Preferred Stock
with marketable securities . . . . . . . . . . . . . $ 930,000 $ --
Payment of preferred stock dividends with
marketable securities. . . . . . . . . . . . . . . . $ 56,641 $ --
Issuance of common stock for previously
established liabilities. . . . . . . . . . . . . . . $ 291,249 $ 117,166
Issuance of stock options for previously
established liabilities. . . . . . . . . . . . . . . $ 62,000 $ --
Issuance of common stock in payment of
liabilities for services rendered. . . . . . . . . . $ -- $ 186,750
Issuance of warrants to purchase common
stock for services rendered. . . . . . . . . . . . . $ 923,730 $ 701,206
Listing fees accrued for capital stock transactions. . $ (22,828) $ --
Unrealized holding gain on available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . $ 1,753,929 $ --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest paid. . . . . . . . . . . . . . . . . . . $ 47,329 $ 107,704
Income taxes . . . . . . . . . . . . . . . . . . . $ 15,233 $ 55,564
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Vizacom Inc., formerly known as Software Publishing Corporation
Holdings, Inc., and subsidiaries, (collectively, the "Company,") is an
international developer and supplier of desktop publishing, presentation
graphics and other visual communications business and productivity computer
software products. The Company sells its products to corporate customers,
consumers, retail and wholesale customers, and original equipment
manufacturers primarily in the United States and Europe. The Company's
business has recently evolved through acquisitions in 2000, into a
multi-national provider of business to business and business to consumer
e-commerce services providing website design, systems integration, customer
service, marketing, warehousing, and fulfillment services, utilizing its
web-enabled multi-lingual call centers located in the United States and
Europe.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Vizacom
Inc. and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. The translation of foreign
currencies into United States dollars for subsidiaries where the local
currency is the functional currency is performed for balance sheet accounts
using the exchange rate in effect at year end and for revenue and expense
accounts using an average rate for the period. The unrealized gains and
losses resulting from such translation are included as a separate component
of stockholders'equity in accumulated other comprehensive loss.
BUSINESS COMBINATIONS
The Company has accounted for all business combinations under the
purchase method of accounting. Under this method the purchase price is
allocated to the assets and liabilities of the acquired enterprise as of
the acquisition date based on their estimated respective fair values which
are subject to revision for a period not to exceed one year from the date
of acquisition. The results of operations of the acquired enterprises are
included in the Company's consolidated financial statements for the period
subsequent to their acquisition.
CONCENTRATION OF CREDIT RISK
The Company performs periodic credit evaluations of its customers but
generally does not require collateral from them.
REVENUE RECOGNITION
Revenue is generally recognized upon shipment of products to customers
and is recorded net of allowances for anticipated returns for potential
excess quantities in the distribution channel. Certain customers have been
provided goods on a consignment basis. Revenues on these transactions are
recognized upon the sale of products to the ultimate customer. Revenue for
"locked versions" of software is recognized when customers purchase an
unlocking code.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with a maturity
of three months or less when purchased.
F-8
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
The Company accounts for investments in marketable securities pursuant
to Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). SFAS
No. 115 requires, among other things, the classification of investments in
one of three categories based upon the Company's intent: (a) trading, (b)
available-for-sale and (c) held-to- maturity, with trading and
available-for-sale securities carried at market value and held-to-maturity
securities carried at amortized cost. Realized and unrealized gains and
losses are recorded in the statement of operations for trading securities,
whereas only realized gains and losses are recorded in the statement of
operations for available-for-sale securities and unrealized gains and
losses are recorded as a component of other comprehensive income. The
Company originally classified its marketable securities as trading
securities, and transferred them to available-for-sale securities as a
result of certain agreements described in Note 3. For a security
transferred from the trading category, the unrealized holding gain or loss
at the date of transfer has already been recognized in earnings, and
accordingly, is not reversed.
INVENTORIES
Inventories, which are principally finished goods, are stated at the lower
of cost (first-in, first-out) or market.
DIRECT-RESPONSE ADVERTISING
Advertising costs associated with direct-response advertising, whose
primary purpose is to elicit sales to customers who could be shown to have
responded specifically to that advertising, are capitalized and recognized
ratably in the future as a percentage of actual period revenues to total
revenues anticipated from such advertising. Costs associated with
direct-response advertising include mailing list rental, postage,
production, and other associated promotional activities. The Company
incurred advertising and promotion costs of approximately $7,582,000 in
1999 and $5,736,000 in 1998.
ROYALTY ADVANCES
Non-refundable royalty payments in connection with licensing contracts
for the Company's products are generally amortized based on product sales.
Management evaluates the future realization of royalty advances
periodically and charges to cost of goods sold any amounts they believe
will not be recovered through future sales.
PRODUCT DEVELOPMENT COSTS
Costs incurred in the development of new software products are
expensed as incurred until technological feasibility has been established.
Product enhancement costs for products which have established technological
feasibility are capitalized, and capitalization is discontinued when the
product is available for sale. Approximately $478,000 was capitalized at
December 31, 1999. Amortization, which will commence when the products are
available for general release to customers, will be computed at the greater
of the straight-line rate over the estimated life of each product, or an
amount based on the ratio of current revenues to the total of current and
anticipated revenues.
F-9
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on
a straight-line basis over the estimated useful lives of the related
assets, generally 3 to 7 years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the life of the improvement or the
remainder of the lease term.
WEB SITE DEVELOPMENT COSTS
Certain direct internal and external costs of web site development
incurred during the application development stage in 1999 are being
capitalized and amortized over a three-year period. At December 31, 1999,
$240,000 of these remaining development costs, net of $28,248 accumulated
amortization, are included in other assets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements
and accompanying notes. These estimates principally include provisions for
sales returns and allowances and purchase price allocations. Actual results
could differ from these estimates.
SELF INSURANCE
The Company is primarily self-insured for its employee health plan,
which covers medical, hospital, and dental claims. The Company accrues for
claims filed and estimates of claims incurred but not reported. The Company
has purchased additional stop-loss coverage above $120,000, in order to
limit its exposure to any significant levels of health claims beyond this
amount.
STOCK OPTIONS
As permitted under the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the
Company continues to apply Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and its related
interpretations in accounting for its stock-based compensation plans.
INCOME TAXES
The liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. The resulting
asset at December 31, 1999 was fully reserved since management does not
believe it is more likely than not that the tax benefit will ultimately be
realized.
LOSS PER SHARE
Basic loss per share is computed based upon the weighted average
number of common shares outstanding during each year. Stock options and
warrants did not have an effect on the computation of diluted
loss per share in 1999 and 1998 since they were anti-dilutive.
F-10
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVERSE STOCK SPLIT
The Company effected a one-for-three (1:3) reverse stock split,
effective as of the close of business on May 27, 1998. All share and per
share amounts for all years presented have been adjusted to reflect such
reverse stock split.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, including cash
and cash equivalents, marketable securities, accounts receivable, accounts
payable, accrued liabilities and short- and long-term debt approximate
their carrying values because of short-term maturities or because their
interest rates approximate current market rates.
The Company utilizes letters of credit to collateralize certain
short-term purchases. In the Company's past experience, no claims have been
made against these financial instruments. Management does not expect any
material losses to result from these off-balance sheet instruments because
performance is not expected to be required, and, therefore, is of the
opinion that the fair value of these instruments is zero.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which
establishes accounting for derivative instruments and hedging activities.
SFAS 133 will require the Company to record all derivatives as assets or
liabilities at fair value. The statement requires that changes in the
derivatives fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The statement was been delayed by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-an
amendment of FASB Statement 133," which delay would require adoption by the
Company as of January 1, 2001. The Company believes that the adoption will
not have a material impact on its financial statements; however, its
effect, if any, will depend on the Company 's exposure to derivative
instruments at the time of adoption and thereafter.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 amounts to conform
with the 1999 presentation.
2. BUSINESS COMBINATIONS AND ACQUISITIONS
In July 1996, the Company acquired Serif Inc. and Serif (Europe)
Limited (collectively, the "Serif companies"). The aggregate purchase
price, including all direct costs, was approximately $4,200,000 and was
principally financed through the issuance of 333,333 shares of the
Company's common stock. The cost of the acquisition exceeded the fair value
of Serif's net assets by approximately $400,000, which was recorded as
goodwill.
In December 1996, the Company acquired Software Publishing Corporation
("SPC"). The aggregate purchase price, including all direct costs, was
approximately $30,000,000 and was principally financed through the issuance
of 1,125,305 shares of the Company's common stock. The cost of the
acquisition exceeded the fair value of SPC's net assets by approximately
$3,795,000, which was recorded as goodwill as of the acquisition date and
was subsequently eliminated in 1997 as a result of settlement and
adjustment of pre-acquisition liabilities and accruals.
F-11
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS COMBINATIONS AND ACQUISITIONS (CONTINUED)
On February 15, 2000, the Company acquired Renaissance Multimedia
("RM"). The aggregate purchase price, including all direct costs, was
approximately $2,752,000 and was principally financed through the issuance
of 449,870 shares of the Company's common stock and a $250,000 cash
payment. The Company entered into a three-year employment contract with the
President of RM at an annual salary of $175,000, with certain predetermined
performance bonus targets. Additionally, the Company granted options to
purchase an aggregate of 600,000 shares of its common stock under its 1994
Long Term Incentive Plan to certain employees of RM. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the
consolidated financial statements of the Company will include the results
of this business subsequent to the acquisition date. The purchase price
will be allocated to the assets acquired and liabilities assumed based on
their fair values on the date of purchase. The approximatly $2,556,000 of
goodwill and other intangibles acquired will be amortized principally over
7 years.
On March 9, 2000, the Company acquired all of the outstanding shares
of Junction 15 Limited, an English company ("J15"). The aggregate purchase
price, including all direct costs, was approximately $2,655,000 and was
principally financed through the issuance of 681,818 shares of the
Company's common stock and a $250,000 cash payment. The Company entered
into three-year employment agreements with two principals of J15 starting
at approximately $150,000 and $80,000, respectively, with various
provisions for pensions, commissions, and bonuses. Additionally, the
Company granted options to purchase an aggregate of 250,000 shares of its
common stock under its 1994 Long Term Incentive Plan to certain employees
of J15. The purchase price will be allocated to the assets acquired and
liabilities assumed based on their fair values on the date of purchase.
The approximately $2,665,000 of goodwill and other intangibles acquired
will be amortized principally over 7 years.
On March 27, 2000, the Company acquired PWR Systems, a Long Island, New
York based interactive internet integrator and value-added reseller of
computer and digital information equipment, for $7,783,000 inclusive of all
direct costs. The purchase price includes a $1,000,000 cash payment, a
$500,000 one-year promissory note convertible into the Company's common
stock at $3.00 per share, and payable in equal quarterly installments with
interest of 6.3% per annum, and 1,500,000 shares of the Company's common
stock, valued at $3 per share, to the two principals of PWR. The
acquisition agreement also calls for additional contingent consideration
of up to $350,000 per annum for the three-year period following the
acquisition based upon increases in PWR's earnings before interest, taxes,
depreciation, and amortization. The Company is further obligated to issue
additional common stock if the market price of the Company's common stock
falls below $1 per share for any consecutive thirty-day period following
the closing. The Company entered into three-year employment agreements with
PWR's two principals providing for annual salaries of $200,000 to each of
them, and provisions for bonuses upon attaining certain specified
performance thresholds. Additionally, the Company granted options to
purchase an aggregate of 750,000 shares of its common stock under its 1994
Long Term Incentive Plan to certain employees and consultants of PWR.
Furthermore, the Company agreed to prepay, upon receipt of gross proceeds
of $15,000,000 from equity offerings, a 6.3% note payable to the PWR
principals, equivalent to the estimated retained earnings of PWR at
closing, of approximately $890,000, subject to adjustment to the actual
retained earnings at the date of acquisition. Otherwise, the note will be
paid in quarterly installments through March 2001. The purchase price will
be allocated to the assets acquired and liabilities assumed based on their
fair values on the date of purchase. The approximately $7,802,000 of
goodwill and other intangible acquired will be amortized principally over
7 years.
F-12
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MARKETABLE SECURITIES
On July 1, 1999, the Company agreed with the holder (the "Holder") of
its shares of Class C 11% Cumulative Non-Convertible Redeemable Preferred
Stock ("Class C Preferred") that in the event the Company called for
redemption any of its shares of Class C Preferred within 45 days, the
Company would sell to the Holder 53,815 Xceed Inc. common stock (the
"Xceed Shares") owned by the Company at a price of $18.44 per Xceed Share,
or $992,349 in the aggregate. On July 14, 1999, the Board of Directors of
the Company called for redemption of all outstanding shares of the Class C
Preferred of the Company with a record date for such redemption of July 19,
1999. Such transaction was consummated on July 19, 1999 resulting in a
realized gain of $642,444 on the exchange of the Xceed Shares.
3. MARKETABLE SECURITIES (CONTINUED)
On August 10, 1999 the Company entered into an agreement with a finder
pursuant to which should the finder provide assistance to the Company in
finding or advising with respect to an acquisition or acquisitions, the
Company shall pay a fee payable in shares of common stock of Xceed Inc.
valued at $13.375 per share (the closing price thereof on the date of the
agreement), equivalent to 10% of the purchase price of the acquisition(s),
up to a maximum of $800,000. The agreement resulted in the Company
transferring the balance of its Xceed shares, or 66,185 Xceed shares, from
trading securities to available-for-sale securities. This resulted in the
recognition of an unrealized holding gain at the date of transfer of
$322,652. In connection with the RM transaction described in Note 2, the
aforementioned party received a fee of 14,953 Xceed Shares. In connection
with the PWR transaction described in Note 2, the aforementioned party
received a fee of 44,860 Xceed Shares. The market value of the Xceed shares
at the time of the RM and PWR acquisitions during the first quarter of 2000
has been recorded as an additional cost of these acquisitions.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment . . . . . . . . . . $ 643,532
Computer software. . . . . . . . . . . 172,413
Office furniture and equipment . . . . 586,527
Leasehold improvements . . . . . . . . 343,928
-----------
1,746,400
Less accumulated depreciation. . . . . 918,292
-----------
Total. . . . . . . . . . . . . . . . . $ 828,108
===========
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998
was $255,974 and $177,783, respectively.
F-13
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LEASES
On July 14, 1999 the Company entered into a sublease agreement for its
corporate headquarters. Under the sublease agreement the Company leases
4,787 square feet of commercial office space commencing September 1, 1999
for a fixed annual rental of $119,675. The lease runs through January 31,
2003.
The Company leases various office space under non-cancelable operating
leases. In addition to the fixed rentals, certain of the leases require the
Company to pay additional amounts based on specified costs related to the
property. Certain of the leases have renewal options for periods of up to 2
years. The Company receives certain sublease income at one of its
locations. Restricted cash of $259,837 at
December 31, 1999 represents collateral of $200,000 for a letter of credit
of like amount which serves as a lease security deposit for premises in
California previously occupied by the Company and now sub-leased to third
parties. The balance represents collateral of $59,837 for a letter of
credit of like amount which serves as a lease security deposit for the
Company's corporate headquarters in Teaneck, New Jersey.
The Company is obligated under various capital leases for computer and
office equipment that expire at various dates during the next five years.
The book value of capital leases included in fixed assets was as follows at
December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment . . . . . . . . . . . $ 53,827
Office equipment . . . . . . . . . . . . 217,243
------------
271,070
Less accumulated amortization. . . . . . 57,579
------------
$ 213,491
===========
</TABLE>
Future minimum lease payments under noncancellable operating leases
primarily for office and warehouse space and the present value of future
minimum lease payments under capital leases as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Net
Capital Operating Sublease Operating
Leases Leases Income Leases
-------- ---------- -------- ---------
Year ending December 31:
------------------------
<S> <C> <C> <C> <C>
2000. . . . . . . . . . . . . . . . . . . . . $ 77,459 $ 784,523 $(405,360) $ 379,163
2001. . . . . . . . . . . . . . . . . . . . . 72,600 396,141 -- 396,141
2002. . . . . . . . . . . . . . . . . . . . . 34,057 176,395 -- 176,395
2003. . . . . . . . . . . . . . . . . . . . . 2,245 9,973 -- 9,973
2004. . . . . . . . . . . . . . . . . . . . . 2,245 -- -- --
---------- ----------- ---------- -----------
Total minimum lease payments. . . 188,606 $1,367,032 $(405,360) $ 961,672
=========== ========== ===========
Less amount representing interest (at rates
ranging from 9.0% to 20.6%) . . . . . . . . . 26,549
----------
Present value of net minimum capital lease
payments. . . . . . . . . . . . . . . . . . . 162,057
Less current installments . . . . . . . . . . 63,792
-----------
Capital lease obligations . . . . . . . . . . $ 98,265
===========
</TABLE>
Total rental expense for operating leases charged to operations for
the years ended December 31, 1999 and 1998 was approximately $198,000 and
$158,000, respectively.
F-14
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. DEBT
<TABLE>
<CAPTION>
Debt consists of the following at December 31, 1999:
<S> <C>
Bank loan, 9.5 %, in monthly installments of $2,305 through
September 2003. . . . . . . . . . . . . . . . . . . . . . . . . . $ 108,977
Bank loan, 9.5 %, in monthly installments of $1,295
through July 2000 . . . . . . . . . . . . . . . . . . . . . . . . 8,891
Note payable - landlord, 10%, in monthly installments of
$1,402 through March 2002 . . . . . . . . . . . . . . . . . . . . 33,780
Directors and officers insurance premium financing, 8.3 %, in
monthly installments of $11,980 through September 2000. . . . . . 104,316
-----------
255,964
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . 155,554
-----------
$ 100,410
===========
</TABLE>
6. DEBT (CONTINUED)
The bank loans are secured by the assets of the Company's U.K. subsidiary,
Serif (Europe) Ltd.
Maturities of long-term debt as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000 . . . . . . . . . . . . . . . . . . . . . $ 155,554
2001 . . . . . . . . . . . . . . . . . . . . . 43,790
2002 . . . . . . . . . . . . . . . . . . . . . 32,370
2003 . . . . . . . . . . . . . . . . . . . . . 24,250
-----------
Total. . . . . . . . . . . . . . . . . . . . . $ 255,964
===========
</TABLE>
At December 31, 1999, a letter of credit amounting to $200,000 was
outstanding related to short term purchase commitments issued to foreign
suppliers for approximately the same amount. The collateral for the letter
of credit consisted of interest bearing bank deposits for the amount of the
letter of credit.
On January 8, 2000 the Company entered into an agreement for a maximum
$1,000,000 unsecured line of credit note arrangement with a foreign
company. The Company borrowed the maximum advance of $1,000,000 on February
17, 2000. Advances under the arrangement bear interest at 8%. This
borrowing was paid in full with accrued interest on March 20, 2000. With
the exception of the first advance, all future advances are payable within
180 days of the receipt of the advance. In connection with this note, the
Company issued warrants to purchase an aggregate of 250,000 shares of its
common stock exercisable at $3.00 per share. The warrants were valued at
$382,500 and will be charged to interest expense over the two-year
agreement period. The Company has agreed to include the shares of common
stock underlying these warrants in its next resale registration statement
to be filed no later than April 17, 2000. The Company further agreed to
issue warrants on similar terms to purchase 25,000 shares of common stock,
and to reduce the exercise price of all of these warrants by 10% for each
full week the filing of this registration statement is delayed.
F-15
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCKHOLDERS' EQUITY
a) COMMON STOCK
In 1998, the Company issued an aggregate of 58,585 shares of common
stock in payment of previously established liabilities incurred in 1996 and
1997 for the acquisition of certain software, goods and legal and
consulting services.
In 1998, the Company issued an aggregate of 143,333 shares of common
stock and warrants to purchase 33,332 shares of common stock, exercisable
at various prices ranging from $1.50 to $3.83 (subject to adjustment) per
share, in payment for services rendered in 1998 by consultants and the
Chairman of the Board.
In 1998, the Company retained an investment banking firm and
consultants and, in connection therewith, issued warrants, valued at
$701,206, to purchase 1,390,000 shares of common stock. The related
deferred charges are being amortized over periods of one to five years.
In 1998, the Company acquired an aggregate 3,095 shares of common
stock, of which 1,237 shares were held by a former employee of one of the
Company's subsidiaries and 1,858 shares were held by a trust for the
benefit of certain of the employees of such subsidiary. The Company is
holding such 3,095 shares in its treasury.
On May 26, 1998, the stockholders of the Company granted the Board of
Directors of the Company authority to amend the Company's Certificate of
Incorporation to authorize a reverse stock split of the common stock.
Following such stockholder action, the Company's Board of Directors
authorized a one- for-three (1:3) reverse stock split of the common stock.
The reverse stock split became effective as of the close of business on May
27, 1998.
In 1998, the Company sold an aggregate of 1,877,968 shares of common
stock to certain investors, including directors, officers and employees of
the Company and their affiliates, for net proceeds of $1,410,625.
In 1999, the Company issued 217,835 shares of its common stock
pursuant to the exercise of warrants and stock options, for aggregate
consideration of $52,373.
F-16
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 6, 1999, the Company entered into certain financial advisory
and investment banking agreements whereby the Company issued warrants to
purchase 100,000 and 45,000 shares, respectively, of common stock of the
Company at an exercise price of $1.125. The warrants are exercisable for
the period from April 6, 2000 through April 6, 2004. The warrants were
valued at $69,742 and $31,523, respectively, and the related deferred
charges are included in deferred consulting costs. The Company also issued
options to purchase 25,000 shares of its common stock to employees of its
legal counsel, at an exercise price of $1.03125 per share. On July 8, 1999
options to purchase 25,000 shares of its common stock were issued to a
member of its legal counsel. On July 20, 1999 the Company issued warrants
to purchase an aggregate of 225,000 shares of its common stock at an
exercise price of $2.00 per share, through July 20, 2004, in connection
with a five-year consulting agreement. Such warrants were valued at
$605,250, are being amortized over the term of the related consulting
agreement, and the related deferred charges are included in deferred
consulting. On October 20, 1999 the Company issued warrants to purchase an
aggregate of 100,000 shares of its common stock at an exercise price of
$2.00 per share, through October 20, 2004, in connection with a five-year
marketing and sales advisory agreement. Such warrants were valued at
$196,000, are being amortized over the term of the related marketing and
sales advisory agreement, and the related deferred charges are included in
deferred consulting. On November 11, 1999 the Company issued warrants to
purchase an aggregate of 25,000 shares of its common stock at an exercise
price of $2.00 per share, through November 10, 2002, in connection with a
consulting agreement. Such warrants were valued at $52,500 and have been
expensed. On December 6, 1999, the Company cancelled the warrants issued in
connection with a certain investment banking agreement based on the
assertion that the investment banking firm failed to perform the related
services under its agreement. This resulted in a charge to additional
paid-in capital of $31,286 in cancellation of the warrant. The dispute is
subject to an arbitration. See further discussion in Note 11. Transactions
costs of $9,237 associated with the warrants have been accrued and charged
to additional paid-in capital. The Company recorded credits to additional
paid in capital of $996,954 as a result of the issuance of the foregoing
warrants and options.
The Company received proceeds in 1999 from private placements of its
common stock of $3,112,884 in connection with the following transactions.
On June 9, 1999, the Company sold an aggregate of 525,000 shares of Common
Stock for aggregate gross proceeds of $1,050,000, before associated
transaction costs of $175,702. On July 1, 1999, the Company sold an
aggregate of 762,653 shares of common stock for aggregate gross proceeds of
$1,510,000, before associated transaction costs of $210,867, in a private
placement. During the period September through October 1999, the Company
sold units in a private placement, each unit consisting of one share of
common stock plus one-quarter of a warrant. Each warrant will allow its
holder to purchase one share of common stock at $2.75 per share for a
three-year period from date of sale. The Company sold 516,413 units for
aggregate gross proceeds of $1,097,375. The associated transaction costs
for the September and October offering were $157,922.
On July 8, 1999, the Company issued 50,000 shares of common stock to
the members of its corporate counsel, in payment of $100,000 of accrued
legal fees due to such law firm. See Note 9.
In December 1999, the Company entered into a settlement agreement,
mutual release, and license related to certain clip-art, and other images
contained within the Company's desktop publishing software. In connection
with this agreement, the Company paid $15,000 and issued 9,756 shares of
common stock valued at $25,000. Also in December 1999, the Company issued
70,268 shares of common stock, valued at $191,249, to three vendors in
settlement of past trade and licensing liabilities. Transaction costs
associated with the issuance of these shares totaled $800.
As of December 31, 1999 the Company had reserved 3,096,656 shares of
common stock for issued and outstanding warrants.
F-17
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2000, the Company completed two private placements under
which it sold 1,699,425 shares of its common stock for gross proceeds of
$7,609,289 before associated placement costs. Under the first of these
private placements, the Company sold 936,954 shares of its common stock and
raised aggregate gross proceeds of $4,216,293. In the second private
placement in Europe, the Company sold 762,471 shares of its common stock
for aggregate gross proceeds of $3,392,996.
b) PREFERRED STOCK
There are 1,939,480 authorized shares of Serial Preferred Stock, par
value $.001 per share. Any shares of Serial Preferred Stock that have been
redeemed are deemed retired and extinguished and may be reissued. The Board
of Directors establishes and designates the series and fixes the number of
shares and the relative rights, preferences and limitations of the
respective series of the Serial Preferred Stock. During 1998, the Company
designated a new Class A of the aforementioned shares, and authorized 1,500
shares of Class A Preferred Stock. Under the Company's Certificate of
Designations, holders of shares of Class A Preferred Stock were entitled to
cumulative dividends of $140 per share per annum, payable semi-annually.
The Company retained the right to redeem the Class A Preferred Stock, in
part or whole, at any time, upon payment of $1,300 per share of Class A
Preferred Stock plus any accrued and unpaid dividends on the Class A
Preferred Stock so redeemed. In December 1998 the Company issued 930 shares
of Class A Cumulative Non-Convertible Redeemable Preferred Stock, Series A
(the "Class A Preferred Stock") in exchange for marketable securities
valued at $930,000. In January 1999, the holder of all 930 shares of the
Class A 14% Cumulative Non-Convertible Redeemable Preferred Stock ("Class A
Preferred") of the Company exchanged such Class A Preferred shares for the
issuance of 930 shares of the Class C Preferred of the Company, and the
issuance of warrants to purchase 260,000 shares of Common Stock, at an
exercise price of $1.0625 per share, exercisable immediately and expiring
in January 2006. Holders of shares of Class C Preferred were entitled to
cumulative dividends of $110 per share per annum, payable semi-annually.
The Company retained the right to redeem the Class C Preferred, in part or
whole, at any time, upon payment of $1,000 per share of Class C Preferred.
The Company incurred legal costs in connection with the exchange of Class A
for Class C, as well as registration of other securities of $33,905. On
July 14, 1999, the Board of Directors of the Company called for redemption
all outstanding shares of Class C Preferred of the Company with a record
date for such redemption of July 19, 1999. See Note 3.
F-18
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCKHOLDERS' EQUITY (CONTINUED)
In March 1998, the Company authorized 100,000 shares of Junior
Participating Preferred Stock, Series A, par value $.001 per share. The
Junior Preferred Stock has preferential voting, dividend and liquidation
rights over the Common Stock. On March 31, 1998, the Company declared a
dividend distribution, payable April 30, 1998, of one Preferred Share
Purchase Right ("Right") on each share of Common Stock. Each Right, when
exercisable, entitles the registered holder thereof to purchase from the
Company one one-thousandth of a share of Junior Preferred Stock at a price
of $1.00 per one one-thousandth of a share (subject to adjustment). The one
one-thousandth of a share is intended to be the functional equivalent of
one share of the Common Stock. The Rights will not be exercisable or
transferable apart from the Common Stock until an Acquiring Person, as
defined in the Rights Agreement, dated as of March 31, 1998, between the
Company and American Stock Transfer & Trust Company, without the prior
consent of the Company's Board of Directors, acquires 20% or more of the
voting power of the Common Stock or announces a tender offer that would
result in 20% ownership. The Company is entitled to redeem the Rights, at
$.001 per Right, any time before a 20% position has been acquired or in
connection with certain transactions thereafter announced. Under certain
circumstances, including the acquisition of 20% of the Common Stock, each
Right not owned by a potential Acquiring Person will entitle its holder to
purchase, at the Right's then-current exercise price, shares of Junior
Preferred Stock having a market value of twice the Right's exercise price.
Holders of a Right will be entitled to buy stock of an Acquiring Person at
a similar discount if, after the acquisition of 20% or more of the
Company's voting power, the Company is involved in a merger or other
business combination transaction with another person in which its common
shares are changed or converted, or the Company sells 50% or more of its
assets or earning power to another person.
The Rights expire on April 20, 2008.
The Class B Voting Preferred Stock, Series A ("Class B Voting
Preferred") has maximum liquidation rights of $.001 per share, and does not
receive dividends.
8. INCOME TAXES
At December 31, 1999, the Company has available net operating loss
carryforwards of approximately $35,000,000, after consideration of certain
limitations described below, that expire in years 2002 through 2019.
The significant components of the Company's deferred tax assets, as of
December 31, 1999, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Current:
Reserve for accounts receivable, inventory and other. . . . . . . . . $ 361,000
Non-current:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,686,000
Net operating loss carryforwards. . . . . . . . . . . . . . . . . . . 13,938,000
-------------
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . 15,985,000
Valuation allowance for deferred tax assets . . . . . . . . . . . . . (15,985,000)
-------------
Net deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . $ 0
=============
</TABLE>
The Company's profit (loss) before income taxes is comprised of the
following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
United States . . . . . . . . . . . . . . . . . . . . . . . . $ (4,085,861) $ (3,071,051)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,791,619) 693,877
-------------- -------------
$ (5,877,480) $ (2,377,174)
============== =============
</TABLE>
F-19
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
The income tax benefit of $(250,978) for 1999 consists principally of
the sale of certain net operating losses in connection with a state
technology transfer program. The income tax provision of $29,541 for 1998
consists principally of foreign taxes which are currently payable.
The reconciliation of income tax computed at the United States federal
statutory tax rates to the recorded income tax expense is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Tax (benefit) at United States federal statutory rates. . . . . $ (1,998,000) $ (808,000)
Non-usable net operating loss carryforwards and other
permanent differences . . . . . . . . . . . . . . . . . . . . 23,598,000 999,000
Change in valuation allowance . . . . . . . . . . . . . . . . . (21,600,000) (191,000)
Foreign and state income taxes (benefit). . . . . . . . . . . . (250,978) 29,541
------------- ------------
$ (250,978) $ 29,541
============= ============
</TABLE>
The Tax Reform Act of 1986 enacted a complex set of rules limiting the
potential utilization of net operating loss and tax credit carryforwards in
periods following a corporate "ownership change." In general, for federal
income tax purposes, an ownership change is deemed to occur if the
percentage of stock of a loss corporation owned (actually, constructively
and, in some cases, deemed) by one or more "5% shareholders" has increased
by more than 50 percentage points over the lowest percentage ownership of
such stock owned during a three-year testing period. With regard to the
purchase of SPC, such a change in ownership occurred. Utilization of the
net operating loss carry- forwards of SPC may be further limited by reason
of the consolidated return/separate return limitation year rules. As a
result of the change, the Company's ability to utilize its net operating
loss carryforwards will be limited to approximately $1.2 million of taxable
income per year for losses through December 31, 1996. The Company has
concluded that certain of its net operating loss carryforwards will not be
usable as a result of these various limitation rules, and accordingly has
eliminated them as deferred tax assets in 1999 against the related
valuation allowance. The decrease of $21,600,000 in the valuation allowance
during the year ended December 31, 1999 was due principally to this
application.
In connection with the purchase of SPC in December 1996, the Company
applied for a closing agreement with the Internal Revenue Service (the
"IRS") in September 1997 pursuant to which the Company will become jointly
and severally liable for SPC's tax obligations upon occurrence of a
"triggering event" requiring recapture of dual consolidated losses
previously utilized by SPC. Such closing agreement would avoid SPC's being
required to recognize a tax of approximately $8 million on approximately
$24.5 million of SPC's pre-acquisition dual consolidated losses. The IRS
has, to date, refused to grant the Company's application for such a closing
agreement because of alleged deficiencies in SPC's pre-acquisition dual
loss certifications. The Company received notification from the IRS that it
determined not to act on its application until SPC submitted certain
filings pertaining to pre-acquisition consolidated tax year return filings
made by SPC. The Company has submitted these filings in an application for
relief. The Company believes that should the IRS accept the application for
relief, and once the re-application for a closing agreement is made, the
IRS should agree to such a closing agreement. However, no assurance can be
given that the IRS will do so, and any failure to do so could result in the
recognition of this tax liability. Should such a closing agreement be
obtained, in certain circumstances, a future acquirer of the Company may
also be required to agree to a similar closing agreement in order to avoid
the same tax liability, to the extent it is able to do so. This could have
a material adverse effect on the Company's future ability to sell SPC.
F-20
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTION PLANS
The Company has four stock options plans: the 1994 Long-Term Incentive
Plan (the "1994 Incentive Plan"), the Outside Directors and Advisors Stock
Option Plan (the "Company Directors Plan"), and the Software Publishing
Corporation 1989 Stock Option Plan and Software Publishing Corporation 1991
Stock Option Plan (collectively, the "SPC Stock Plans"). All plans are
administered by the Board of Directors or a committee thereof.
Elements of the Company's various stock option plans include the following:
THE 1994 INCENTIVE PLAN - In December 1993, the Company's Board of
Directors and stockholders adopted the 1994 Incentive Plan. Under the terms
of the 1994 Incentive Plan, the Company's Board of Directors or a committee
thereof may grant options, stock appreciation rights, restricted stock
performance grants of the Company's common stock, cash or other assets to
employees, consultants and others who perform services for the Company at
such prices as may be determined by the Board of Directors (which price may
be no less than 85% of the fair market value of the common stock on the
date of grant in the case of nonqualified stock options). In July 1999, the
Company's stockholders approved the increase of the maximum number of
shares of common stock subject to the 1994 Incentive Plan from 1,333,333 to
5,000,000. The options currently outstanding vest over a period of up to
five years and expire after 10 years.
THE COMPANY DIRECTORS PLAN - In August 1995, the Company's Board of
Directors and stockholders approved the Company Directors Plan. Under the
terms of this plan, each new non-employee director receives options to
purchase 25,000 shares exercisable at fair market value on the date of
grant upon becoming such a director. In addition, on each August 1
thereafter each such person will receive options to purchase 25,000 shares
of the Company's common stock at an exercise price equal to the fair market
value at the respective dates of grant. In July 1999, the Company's
stockholders approved the increase of the maximum number of shares of
common stock under the Company Directors Plan from 166,666 to 750,000. The
options vest over a period of two years and expire after 10 years.
THE SPC PLANS - Options under the SPC Stock Plans may be granted for
periods of up to ten years, for the 1989 plan, at prices no less than 50%
of fair value and, for the 1991 plan, an exercise price no lower than 85%
of fair value, in each case for non qualified options, and at not less than
fair market value for incentive stock options. To date all options have
been issued at fair value. Options become exercisable at such times and
under such conditions as determined by the Board of Directors. As a result
of the acquisition of SPC by the Company all options outstanding under the
SPC Plans were converted (based on the exchange ratio used to complete the
acquisition) to options to acquire the Company's common stock. The maximum
number of shares of common stock subject to the SPC Stock Plans is 223,040.
In addition to the plans described above, the Company's Board of
Directors from time-to-time has granted outside consultants, employees, and
vendors non-plan options. Specific terms of each such grant are at the sole
discretion of the Board of Directors and are generally at prices not less
than the fair market value at the date of grant.
F-21
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTION PLANS (CONTINUED)
Option activities under the plans and for the non-plan options are detailed
in the following table:
<TABLE>
<CAPTION>
Weighted
Average
1994 Company's Exercise
Incentive Directors SPC Non- Price Per
Plan Plan Plans Plan Share
---------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding at January 1, 1998 . . . . . . . 1,158,231 118,445 71,916 50,000 $ 6.87
Granted. . . . . . . . . . . . . . . . . . . 495,001 49,998 -- -- .95
Forfeited. . . . . . . . . . . . . . . . . . (511,535) (12,781) (63,876) (33,334) (7.26)
Repriced - granted . . . . . . . . . . . . . 430,723 34,477 -- -- 1.38
Repriced - forfeited . . . . . . . . . . . . (430,723) (34,477) -- -- (4.01)
----------- --------- --------- --------- ---------
Outstanding at December 31, 1998 . . . . . . . 1,141,697 155,662 8,040 16,666 $ 2.43
Granted. . . . . . . . . . . . . . . . . . . 400,000 75,000 215,000 442,033 1.58
Forfeited. . . . . . . . . . . . . . . . . . (177,212) (55,555) (5,055) (3,000) (2.27)
Exercises. . . . . . . . . . . . . . . . . . (13,478) (2,222) -- (1,750) 1.35
----------- ---------- --------- --------- ---------
Outstanding at December 31, 1999 . . . . . . . 1,351,007 172,885 217,985 453,949 $ 2.13
=========== ========== ========= ========= =========
Exercisable at December 31, 1999 . . . . . . . 795,880 116,283 78,147 174,032 $ 2.59
=========== ========== ========= ========= =========
Exercisable at December 31, 1998 . . . . . . . 459,929 130,592 8,040 16,666 $ 3.72
=========== ========== ========= ========= =========
</TABLE>
As of December 31, 1999, 5,899,119 shares of common stock are reserved
for issuance under the plans described above.
On May 27, 1998, the Company effected a one-for-three reverse stock
split. All option balances and activities have been adjusted to reflect
this reverse stock split.
F-22
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTION PLANS (CONTINUED)
Effective July 1998, the Company adopted a repricing program pursuant
to which (a) the Company offered to each optionee (each, an "Eligible
Optionee") granted one or more options under any of the Company's various
stock plans who, as of July 17, 1998, was either an employee or a director
of the Company, the right to exchange each outstanding option (each, an
"Eligible Option") granted to such Eligible Optionee under the Company's
various stock option plans for the issuance of two options, the first such
option (the "New Option") entitling the Eligible Optionee to purchase up to
75% of the number of shares of common stock that were issuable under the
Eligible Option so exchanged, at an exercise price per share equal to
$1.375, the closing per share price on the effective date of the repricing
program, and the second such option (the "Non-Repriced Option") entitling
such Eligible Optionee to purchase up to 25% of the number of shares of
common stock that were issuable under the Eligible Option so exchanged, at
an exercise price per share equal to the exercise price per share under the
Eligible Option so exchanged. To the extent the Eligible Option so
exchanged was exercisable, the Non-Repriced Option shall be exercisable
and, where the number of shares exercisable under the Eligible Option so
exchanged exceeded the number of shares issuable under the Non-Repriced
Option, any such options shall be immediately exercisable under the New
Option. Further, to the extent the Eligible Option so exchanged was not
exercisable, the Non-Repriced Option shall first become exercisable in
accordance with the earliest dates set forth in the Eligible Option so
exchanged for the exercisability of shares issuable under the Eligible
Option so exchanged, and the shares of common stock issuable under the New
Option shall become exercisable over the next four years. In addition, each
New Option shall have a term expiring ten years from the effective date of
the repricing program and shall be deemed granted under such of the Plans
under which the Eligible Option was originally granted and the Non-Repriced
Option shall be deemed granted under such of the Plans under which the
Eligible Option was originally granted. Except as otherwise noted, each of
the Repriced Options shall otherwise be identical to the Eligible Option so
exchanged.
The weighted average fair value of options granted was $.93 and $.60 for
1999 and 1998, respectively.
F-23
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTION PLANS (CONTINUED)
At December 31, 1999, for each of the following classes of options as
determined by range of exercise price, the following information regarding
weighted-average exercise prices and weighted average remaining contractual
lives of each class is as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Weighted Average Exercise
Average Remaining Number of Price of
Number Exercise Contract Life Options Options
of Price of of Outstanding Currently Currently
Option Class Options Options Options Exercisable Exercisable
------------ ------- ------- ------- ----------- -----------
Prices ranging from:
<S> <C> <C> <C> <C> <C>
$ 0.59 - $ 1.38 . . . . 1,700,005 $ 1.16 8.94 797,609 $ 1.07
$ 2.00 - $ 3.83 . . . . 358,235 3.35 8.38 241,066 3.48
$ 4.50 - $ 7.50 . . . . 54,776 6.64 5.22 54,109 6.63
$ 10.99 - $ 13.99 . . . . 57,729 11.85 6.08 52,033 11.92
$ 17.63 - $ 23.25 . . . . 25,081 17.64 6.58 19,525 17.65
</TABLE>
Pro forma information regarding net income (loss) and earnings (loss)
per share is required by SFAS No. 123, and has been determined as if the
Company had been accounting for its employee stock options under the fair
value method of that statement. The fair value of these options was
estimated at the date of grant using a Black-Scholes option pricing model
with the following assumptions for 1999 and 1998, respectively:
weighted-average risk-free interest rates of 5.3% for 1999 and 5.21% for
1998; no dividends; volatility factors of the expected market price of the
Company's common stock of 100% for 1999 and 70% for 1998; and a
weighted-average expected life of the options of 2 years for 1999 and 5
years for 1998.
The Company applies APB Opinion No. 25 and its related interpretations
in accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plan grants. Had compensation cost
been determined using the fair value at the grant dates for awards under
those plans consistent with the method of SFAS No. 123, the Company's net
loss and loss per share would have been changed as indicated below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Pro forma net loss . . . . . . . . . . . . . . . . . . $ (7,036,731) $ (3,083,875)
Pro forma net loss per share - basic and diluted . . . $ (1.18) $ (.84)
</TABLE>
The pro forma disclosures presented above for 1999 and 1998,
respectively, reflect compensation expense only for options granted in 1996
and thereafter. These amounts may not necessarily be indicative of the pro
forma effect of SFAS No. 123 for future periods in which options may be
granted, due to possible future grants and the effect of the exclusion of
pre-1996 grants.
10. RETIREMENT PLANS
The Company maintains a defined contribution 401(k) savings plan
("401(k) plan") for the benefit of eligible employees. Under the 401(k)
plan, a participant may elect to defer a portion of annual compensation.
Contributions to the 401(k) plan are immediately vested in plan
participants' accounts. Plan expenses were $3,310 and $3,444 for 1999 and
1998, respectively. The Company provides similar plans for the benefit of
eligible employees at its European subsidiaries.
F-24
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES
LITIGATION
On January 30, 1998, an action was commenced against the Company, its
current chief executive officer and its former chief executive officer. The
action alleged that the plaintiffs' investment in 296,333 shares of common
stock for $919,495 was made based upon certain information that was
intended to deceive the plaintiffs. The plaintiffs sought to recind the
investment and certain other relief. The case has been dismissed with
prejudice with no further cost to the Company.
In May 1998, an action commenced by the Company's former Chairman of
the Board, President and Chief Executive Officer and his wife, also a
former officer and director of the Company, was settled at a cost to the
Company of approximately $200,000, which amount had been accrued at
December 31, 1997.
In the fourth quarter of 1998, an action was commenced against the
Company in California in which plaintiff is seeking $300,000 in damages for
the Company's alleged violation of a lease for office space located in San
Jose, California. This is the location at which SPC had its principal place
of business and at which the Company had its principal executive offices
during the period of January 1997 through January 1998. The Company no
longer has any offices at this location. The Company has filed an answer in
this action denying the plaintiffs' claims and plans to file a summary
judgement motion seeking a determination in its favor on the claims. The
Company believes that the plaintiffs claims are without merit and intends
to vigorously defend itself in this action.
In February 2000 the Company received a demand for arbitration with
respect to certain fees payable in connection with an investment banking
agreement which it terminated. The claim calls for payment of $45,000 and
reinstatement of warrants to purchase 150,000 shares of common stock,
cancelled upon termination, and legal and other expenses in connection with
the arbitration. The Company believes that the claims in this action are
without merit and intends to vigorously defend itself in this action.
The Company has other litigation matters in progress in the ordinary
course of business. In the opinion of management, all pending litigation of
the Company will be resolved without a material adverse effect on the
Company's financial position, results of operations or cash flows.
EMPLOYMENT AGREEMENT
On July 14, 1999, the Company entered into a three-year employment
agreement with the Company's President and Chief Executive Officer, Mark E.
Leininger. Under the terms of the agreement, Mr. Leininger will receive
$162,500 base pay with minimum $10,000 annual increases during the term of
the agreement. Such annual increases may be revised upward at the
discretion of the Compensation Committee of the Board of Directors. Mr.
Leininger will receive a $25,000 bonus upon the Company's attainment of its
first profitable fiscal quarter. Mr. Leininger will also receive a
quarterly bonus of 3% of the Company's income before extraordinary items.
In the event of a change of control, the agreement provides that Mr.
Leininger shall have the right to terminate the employment agreement within
six months thereafter, and receive payment of three times the average
annual cash compensation paid by the Company to Mr. Leininger over the
previous five years, less $1.00. The agreement further contains
restrictions on the officer engaging in competition with the Company for
the term thereof and for up to one year thereafter, and provisions
protecting the Company's proprietary rights and information.
F-25
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LONG TERM CONSULTING AGREEMENT
The Company has entered into a five-year financial consulting
agreement pursuant to which the Company is required to pay .30% of its net
revenue (subject to an annual minimum fee of $125,000, and an annual
maximum fee of $250,000) to the consultant. The term of the agreement may
be automatically extended by an additional eighteen months if the Company
reports annual net revenues of $40,000,000, and an additional eighteen
months should net revenues exceed $60,000,000. At December 31, 1999 the
Company has accrued $125,000 in connection with this agreement.
PURCHASE COMMITMENT
On July 27, 1999 the Company entered into a minimum annual purchase
commitment of approximately $230,000 with a distributor of certain software
the Company intends to sell in its direct mail operation.
12. FOREIGN AND DOMESTIC OPERATIONS
The Company conducts its business within the computer software industry.
Foreign and domestic operations as of December 31, 1999 and for the year
then ended are as follows:
<TABLE>
<CAPTION>
United
States Europe Consolidated
------------ ------------ ------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . $ 6,730,271 $ 13,161,086 $ 19,891,357
Income (loss) before income taxes. . . . . . . . (4,085,861) (1,791,619) (5,877,480)
Depreciation and amortization. . . . . . . . . . 2,758,104 149,654 2,907,758
Income tax expense (benefit) . . . . . . . . . . (216,044) (34,934) (250,978)
Interest expense . . . . . . . . . . . . . . . . 29,494 12,128 41,622
Interest income. . . . . . . . . . . . . . . . . (55,181) (24,088) (79,269)
Identifiable assets as of December 31, 1999. . . $ 6,214,873 $ 4,260,098 $ 10,474,971
============= ============= =============
</TABLE>
Foreign and domestic operations as of December 31, 1998 and for the year
then ended are as follows:
<TABLE>
<CAPTION>
United
States Europe Consolidated
------------- ------------- ------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . $ 8,431,271 $ 9,840,462 $ 18,271,733
Income (loss) before income taxes . . . . . . . . (3,071,051) 693,877 (2,377,174)
Depreciation and amortization . . . . . . . . . . 2,462,708 108,216 2,570,924
Income tax expense. . . . . . . . . . . . . . . . -- 29,541 29,541
Interest expense. . . . . . . . . . . . . . . . . 24,085 25,000 49,085
Interest income . . . . . . . . . . . . . . . . . (60,148) (87,566) (147,714)
Identifiable assets as of December 31, 1998 . . . $ 5,523,240 $ 4,789,456 $ 10,312,696
============= ============= ==============
</TABLE>
F-26
<PAGE>
VIZACOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS
The Company compensates its Chairman of the Board for his services as such
at the rate of $60,000 per annum. During 1998, the Company paid $30,000
under this arrangement and issued 30,000 shares of Common Stock in
satisfaction of $22,500 of its obligations under such compensation
arrangement. In November 1999, the Company agreed to pay its Chairman
an additional $3,000 per month for November and December 1999 for
additional services the Company requested that he perform.
The Company incurred legal expenses of approximately $447,000 in 1999
(approximately $123,000 related to equity transactions and was charged to
additional paid in capital) and $448,000 in 1998 to a law firm in which a
director of the Company was a member, of which approximately $124,000 is
included in accounts payable at December 31, 1999.
In April 1999, the Company issued options to purchase 25,000 shares of
its common stock to employees of its legal counsel, at an exercise price of
$1.03. In July 1999, 50,000 shares of common stock were issued to the
members of the Company's corporate law firm, of which a director of the
Company is a member, in payment of legal fees. In addition, in June and
July 1999, options to purchase an aggregate of 100,000 shares of common
stock were granted to the members of this law firm at exercise prices of
$2.75 and $3.08 per share. Options to purchase 75,000 of these shares were
granted under the Company's 1994 Long Term Incentive Plan.
On January 28, 2000 the Company issued options to purchase 24,000
shares of its common stock to certain members of this law firm.
14. CUSTOMER CONCENTRATION AND CREDIT RISK
For the year ended December 31, 1999, one customer accounted for 19%
of the Company's consolidated net accounts receivable. For the year ended
December 31, 1998, the same customer accounted for approximately 12.7% and
36% of consolidated net revenues and accounts receivable, respectively. The
Company is not aware of any significant concentration of business
transacted with a particular customer that could, if suddenly eliminated,
have a material adverse impact on its operations. The Company does not have
a concentration of available sources of labor, services, licenses or other
rights that could, if suddenly eliminated, have a material adverse impact
on its operations.
15. SUBSEQUENT EVENTS
On January 8, 2000 the Company entered into a $1,000,000 unsecured
line of credit note agreement with a foreign company under which it
borrowed the maximum amount and repaid it in full with accrued interest in
March 2000. See Note 6.
On January 8, 2000 the Company entered into a consulting agreement
under which the Company issued an aggregate of 650,000 warrants exercisable
at $3.00 per share.
The Company entered into multiple acquisitions subsequent to December
31, 1999. On February 15, 2000 the Company acquired Renaissance Multimedia.
On March 9, 2000 the Company acquired Junction 15. On March 27, 2000 the
Company acquired PWR Systems. These acquisitions are described in Notes 2
and 3.
In March 2000 the Company completed two private placements in which it sold
an aggregate of 1,699,425 shares of its common stock for gross proceeds of
$7,609,289, before associated transaction costs. See Note 7.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Renaissance Computer Art Center, Inc.
New York, New York
We have audited the accompanying balance sheet of Renaissance Computer Art
Center, Inc. as of December 31, 1999, and the related statements of operations
and retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of Renaissance Computer Art
Center, Inc. as of December 31, 1999, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
March 20, 2000
F-28
<PAGE>
RENAISSANCE COMPUTER ART CENTER, INC.
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 131,316
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 245,270
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . 19,854
-----------
Total current assets 396,440
Property and equipment, at cost, less accumulated
depreciation of $195,507 . . . . . . . . . . . . . . . . . . 81,677
Security deposits and other assets . . . . . . . . . . . . . . 14,424
-----------
$ 492,541
===========
LIABILITIES
Current liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . $ 13,663
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 57,451
Accrued expenses and other current liabilities . . . . . . . 144,352
Deferred income taxes. . . . . . . . . . . . . . . . . . . . 14,000
Capital lease obligation . . . . . . . . . . . . . . . . . . 6,793
Due to shareholder . . . . . . . . . . . . . . . . 19,475
-----------
Total current liabilities 255,734
Note payable - long-term . . . . . . . . . . . . . . . . . . . 39,381
Capital lease obligation - long-term . . . . . . . . . . . . . 1,803
-----------
296,918
-----------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, no par value; 1,000 shares
authorized; 500 shares issued and outstanding . . . . . . . 1,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . 119,577
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 75,046
-----------
195,623
-----------
$ 492,541
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-29
<PAGE>
RENAISSANCE COMPUTER ART CENTER, INC.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1999
<S> <C>
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . $1,531,400
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . 546,490
-----------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . 984,910
Selling, general and administrative expenses. . . . . . . . . 925,276
----------
Income from operations. . . . . . . . . . . . . . . . . . . . 59,634
Other income (expenses):
Other income. . . . . . . . . . . . . . . . . . . . . . . . 2,456
Interest expense. . . . . . . . . . . . . . . . . . . . . . (788)
-----------
Income before provision for income taxes. . . . . . . . . . . 61,302
Provision for income taxes. . . . . . . . . . . . . . . . . . 23,000
-----------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . 38,302
Retained earnings, beginning of year . . . . . . . . . . . . 36,744
-----------
Retained earnings, end of year. . . . . . . . . . . . . . . . $ 75,046
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-30
<PAGE>
RENAISSANCE COMPUTER ART CENTER, INC.
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
Cash flows from operating activities:
<S> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 38,302
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 24,639
Deferred income taxes . . . . . . . . . . . . . . . . . . 14,000
Changes in:
Accounts receivable . . . . . . . . . . . . . . . . . . (121,575)
Prepaid expenses. . . . . . . . . . . . . . . . . . . . (19,854)
Other assets. . . . . . . . . . . . . . . . . . . . . . (4,203)
Accounts payable. . . . . . . . . . . . . . . . . . . . 47,513
Accrued expenses and other current liabilities. . . . . 65,001
-----------
Net cash provided by operating activities 43,823
-----------
Cash flows from investing activities:
Purchases of property and equipment. . . . . . . . . . . . (42,096)
----------
Cash flows from financing activities:
Proceeds from issuance of notes payable. . . . . . . . . . 55,000
Payment of notes . . . . . . . . . . . . . . . . . . . . . (1,956)
Payments of capital lease obligation . . . . . . . . . . . (17,292)
-----------
Net cash provided by financing activities. . . . . . . 35,752
-----------
Increase in cash and cash equivalents 37,479
Cash and cash equivalents, beginning of year . . . . . . . . 93,837
-----------
Cash and cash equivalents, end of year . . . . . . . . . . . $ 131,316
===========
Supplemental disclosures of cash flow information:
Cash paid for interest. . . . . . . . . . . . . . . . . . $ 788
Cash paid for income taxes. . . . . . . . . . . . . . . . $ 41,243
Noncash investing and financing transaction:
Purchase of equipment through capital leases. . . . . . . $ 2,902
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
F-31
<PAGE>
RENAISSANCE COMPUTER ART CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE A - ORGANIZATION AND BUSINESS
Renaissance Computer Art Center, Inc. (the "Company") is a full-service new
media design and production firm, focused on interactive multimedia Internet
websites and events. The Company also develops business-to business marketing
tools using multimedia and digital video. The Company's production services
include project development, scripting, design, illustration, authoring, and
software programming.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
[2] PROPERTY AND EQUIPMENT:
Property and equipment are reported at cost. Major expenditures for property
and those which substantially increase useful lives are capitalized.
Maintenance, repairs, and minor renewals are expensed as incurred. When assets
are retired or otherwise disposed of, their costs and related accumulated
depreciation are removed from the accounts, and resulting gains or losses are
included in operations. Depreciation is provided through the use of the
straight-line method over the estimated useful lives of the related assets.
[3] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
[4] CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to credit risk
consist principally of trade receivables. To reduce credit risk, the Company
performs credit evaluations of its customers' financial condition. The
Company's customers, with which it does the majority of its business, are well
known and financially stable. The Company maintains reserves when necessary for
potential credit losses for trade accounts receivable. Historically, the
Company has not experienced any significant losses in any particular industry
or geographic area.
F-32
<PAGE>
RENAISSANCE COMPUTER ART CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[5] ADVERTISING COSTS:
Advertising costs are expensed as incurred.
[6] FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying amounts of the Company's financial instruments including cash and cash
equivalents, accounts receivable, accounts payable, and other current
liabilities approximate fair value due to their relatively short maturities.
The carrying amount of notes payable approximated fair value because interest
is charged at market rates.
[7] REVENUE RECOGNITION:
Revenue for production services is based on individual customer contracts and
is recognized using the percentage-of-completion method, based on the
proportion of actual costs incurred to date to total estimated costs for each
contract.
[8] INCOME TAXES:
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on the differences
between financial reporting and the tax bases of assets and liabilities and are
measured using enacted laws and tax rates that will be in effect when the
differences are expected to reverse.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1999:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIVES COST
---------------- ----------
<S> <C> <C>
Computer software 3 years $ 20,000
Computer equipment 5 years 231,883
Furniture and equipment 7 years 20,751
Leasehold improvements Life of lease 4,550
--------
277,184
Less accumulated depreciation 195,507
--------
Net property and equipment $ 81,677
========
</TABLE>
F-33
<PAGE>
RENAISSANCE COMPUTER ART CENTER, INC.
NOTES TO FINANCIAL STATMENTS
DECEMBER 31, 1999
NOTE C - PROPERTY AND EQUIPMENT (CONTINUED)
The Company has acquired computer equipment under lease arrangements that are
classified as capital leases. These acquisitions are accordingly included in the
property and equipment balances (see Note D below).
Depreciation and amortization expense was $24,639 for the year ended December
31, 1999.
NOTE D - CAPITAL LEASES
As discussed in Note C above, the Company acquired computer equipment under
lease arrangements classified as capital leases. The lease obligations require
aggregate installments ranging from $157 to $968 per month through December
2001. The interest rates on these leases range from approximately 12% to 18%.
The following is a schedule of future minimum lease payments under capital lease
obligations at December 31,1999:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
2000 $ 7,433
2001 1,883
-------
9,316
Less amount representing interest 720
-------
Present value of minimum lease payments 8,596
Less current portion 6,793
-------
Long-term portion $ 1,803
=======
</TABLE>
The net book value of equipment held under capital leases at December 31, 1999
was $17,545.
NOTE E - NOTE PAYABLE
<TABLE>
<CAPTION>
<S> <C>
Due in monthly installments of $1,956, which includes
interest at 13.671%, commencing on January 1, 2000
and continuing through November 1, 2002 $ 53,044
Less current portion 13,663
--------
$ 39,381
========
</TABLE>
F-34
<PAGE>
RENAISSANCE COMPUTER ART CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE E - NOTE PAYABLE (CONTINUED)
The following is a schedule of future payments due under the note payable at
December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
2000 $ 13,663
2001 19,266
2002 20,115
---------
$ 53,044
=========
</TABLE>
NOTE F - OPERATING LEASE
The Company rents office space in New York City under a five-year lease
arrangement ending April 2002 that is classified as an operating lease. Rent
expense was approximately $44,000 for the year ended December 31, 1999.
The following is a schedule of the future minimum lease obligations under the
operating lease at December 31, 1999:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
2000 $ 54,000
2001 55,000
2002 19,000
--------
$128,000
========
</TABLE>
NOTE G - INCOME TAXES
The provision for income taxes for the year ended December 31, 1999 is composed
of the following:
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal $ 6,000
State and local 12,000
--------
18,000
--------
Deferred:
Federal 2,800
State and Local 2,200
-------
5,000
-------
$23,000
=======
</TABLE>
F-35
<PAGE>
RENAISSANCE COMPUTER ART CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE G - INCOME TAXES (CONTINUED)
The Company files its income tax returns on the cash basis of accounting.
Deferred income taxes represent the expected future tax consequences of the
differences between (i) the carrying amounts of the assets and liabilities
(principally accounts receivable and accounts payable and accrued expenses which
are stated, for financial reporting purposes, on the accrual basis) and (ii)
their income tax basis, and differences in depreciation for financial reporting
and income tax purposes.
Deferred tax assets and liabilities at December 31, 1999 consist of:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset:
Depreciation $ 2,000
Deferred tax liability:
Accrual to cash basis (16,000)
---------
Net deferred tax liability $(14,000)
=========
</TABLE>
The difference between the provision for taxes computed at the statutory rate of
15% and the reported amount of tax expense attributable to income before income
tax is principally due to state and local income taxes.
NOTE H - ADVERTISING COSTS
The Company recorded advertising expense of approximately $42,000 for the year
ended December 31, 1999.
NOTE I - DUE TO SHAREHOLDER
The loan payable to a shareholder is expected to be forgiven upon consummation
of the business combination referred to in Note J.
NOTE J - SUBSEQUENT EVENT
On February 15, 2000, the Company was acquired by Vizacom Inc. The
aggregate purchase price was approximately $2,000,000, of which $1,750,000 was
paid to the Companys' shareholders by issuance of 449,870 shares of Vizacom Inc.
common stock, and the balance of $250,000 consisted of a cash payment.
Additionally, Vizacom Inc. granted options to purchase an aggregate of 600,000
shares of its common stock under its 1994 Long-term Incentive Plan to certain
employees of the Company.
F-36
<PAGE>
JUNCTION 15 LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1999
The directors present their report and financial statements for the year ended
31 December 1999.
PRINCIPAL ACTIVITIES AND REVIEW OF THE BUSINESS
The principal activity of the company continued to be that of the provision of
computer consultancy services.
The directors expect substantial sales growth and a profitable current year.
RESULTS AND DIVIDENDS
The results for the year are set out on page 4.
The company paid a dividend in excess of its distributable reserves. At the
time the dividend was paid there were sufficient distributable reserves, based
on interim accounts to cover the amount of the dividend.
The directors do not propose a final dividend.
POST BALANCE SHEET EVENTS
Vizacom Inc. acquired all of the company's issued share capital on 9 March 2000.
YEAR 2000
The company did not experience any year 2000 compliance issues on the year
change. The directors are satisfied that all major computer systems are
compliant, although given the complexity of the problem, it is not possible for
any organisation to guarantee that no further year 2000 problems will arise.
However, the directors consider that it has sufficient resources available to
deal promptly with any such issues, and do not expect to have to expend amounts
in excess of normal computer costs on these.
DIRECTORS
The following directors have held office since 1 January 1999:
Ian C.N. McCalla
Paul J. Simpson
F-37
<PAGE>
DIRECTORS' INTERESTS
THE DIRECTORS' BENEFICIAL INTEREST IN THE SHARES OF THE COMPANY WERE AS STATED
BELOW:
<TABLE>
<CAPTION>
Ordinary shares of BP0.10p each Ordinary bearer shares of BP0.10p each
-------------------------------------- ------------------------------------------
31 December 1999 1 January 1999 31 December 1999 1 January 1999
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Ian C.N. McCalla . . . . . -- -- -- --
Paul J. Simpson. . . . . . -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
'A' Ordinary shares of BP0.10p each 'B' Ordinary bearer shares of BP0.10p each
-------------------------------------- ------------------------------------------
31 December 1999 1 January 1999 31 December 1999 1 January 1999
---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Ian C.N. McCalla . . . . . 620 26,300 -- --
Paul J. Simpson. . . . . . -- -- 9,140 8,790
</TABLE>
<TABLE>
<CAPTION>
'C' Ordinary shares of BP0.10p each
---------------------------------------
31 December 1999 1 January 1999
---------------- --------------
<S> <C> <C>
Ian C.N. McCalla. . . . . . . . . . . . . . . . -- --
Paul J. Simpson . . . . . . . . . . . . . . . . -- --
</TABLE>
AUDITORS
In accordance with section 385 of the Companies Act 1985, a resolution proposing
that Silver Levene be reappointed as auditors of the company will be put to the
Annual General Meeting.
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the company will continue in
business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
By order of the board
Ian C.N. McCaIla
Director
4 April 2000
F-38
<PAGE>
JUNCTION 15 LIMITED
AUDITORS' REPORT
TO THE BOARD OF DIRECTORS OF JUNCTION 15 LIMITED
We have audited the financial statements on pages 4 to 15 for the year
ended December 31, 1999 which have been prepared under the historical cost
convention and on the basis of the accounting policies set out in page 8 to the
financial statements. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes, an assessment of the significant estimates and judgements
made by the directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed. We believe that our audits
provide a reasonable basis for our opinion.
In forming our opinion, we have considered the adequacy of the disclosures
made in note 1 of the attached financial statements concerning the ability to
generate profits and the continued support of the Company's bankers and owners.
In view of the significance of this matter, we consider that it should be drawn
to your attention but our opinion is not qualified in this respect.
In our opinion the financial statements referred to above present fairly,
in all material respect, the financial position of Junction 15 Limited at 31
December 1999 and the results of its operations and its cash flows for the year
then ended, in conformity with accounting principles generally accepted in the
United Kingdom.
/s/ Silver Levene
SILVER LEVENE April 4, 2000
Chartered Certified Accountants 37 Warren Street
REGISTERED AUDITORS London, United Kingdom WIP 5PD
F-39
<PAGE>
JUNCTION 15 LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1999
<TABLE>
<CAPTION>
1999
Notes $
<S> <C> <C>
TURNOVER. . . . . . . . . . . . . . . . . . . . . 2 717,804
Cost of sales . . . . . . . . . . . . . . . . . . (357,088)
----------
GROSS PROFIT. . . . . . . . . . . . . . . . . . . 360,716
Distribution costs. . . . . . . . . . . . . . . . (78,840)
Administrative expenses . . . . . . . . . . . . . (314,100)
Other operating income. . . . . . . . . . . . . . 647
----------
OPERATING LOSS. . . . . . . . . . . . . . . . . . 3 (31,577)
Interest payable and similar charges. . . . . . . 4 (6,912)
----------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION . . . (38,489)
Tax on loss on ordinary activities. . . . . . . . 5 1,819
----------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION. . . . (36,670)
Dividends . . . . . . . . . . . . . . . . . . . . 6 (3,701)
RETAINED LOSS FOR THE YEAR. . . . . . . . . . . . 14 (40,371)
==========
</TABLE>
The profit and loss account has been prepared on the basis that all operations
are continuing operations.
There are no recognised gains and losses other than those passing through the
profit and loss account.
F-40
<PAGE>
JUNCTION 15 LIMITED
BALANCE SHEET
AS AT 31 DECEMBER 1999
<TABLE>
<CAPTION>
1999
Notes $ $
<S> <C> <C>
FIXED ASSETS
Tangible assets . . . . . . . . . . . . . . . . . 7 39,009
CURRENT ASSETS
Stocks. . . . . . . . . . . . . . . . . . . . . . 8 5,363
Debtors . . . . . . . . . . . . . . . . . . . . . 9 231,862
Cash at bank and in hand. . . . . . . . . . . . . 40
----------
237,265
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR. . 10 (267,437)
----------
NET CURRENT LIABILITIES . . . . . . . . . . . . . (30,172)
---------
TOTAL ASSETS LESS CURRENT LIABILITIES . . . . . . 8,837
CREDITORS: AMOUNTS FALLING DUE AFTER MORE
THAN ONE YEAR . . . . . . . . . . . . . . . . 11 (19,194)
---------
(10,357)
=========
CAPITAL AND RESERVES
Called up share capital . . . . . . . . . . . . . 13 6,935
Share premium account . . . . . . . . . . . . . . 14 26,534
Profit and loss account . . . . . . . . . . . . . 14 (43,826)
--------
SHAREHOLDERS' FUNDS . . . . . . . . . . . . . . . 15 (10,357)
========
</TABLE>
The financial statements were approved by the Board on 4 April 2000
Ian C.N. McCalla Paul J. Simpson
Director Director
F-41
<PAGE>
JUNCTION 15 LIMITED
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1999
<TABLE>
<CAPTION>
1999
$
<S> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES. . . . . . 6,979
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . (6,912)
--------
NET CASH OUTFLOW FOR RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE. . . . . . . . . . . . . . . . . . . . . . . . (6,912)
CAPITAL EXPENDITURE
Payments to acquire tangible assets. . . . . . . . . . . . . . (32,359)
--------
NET CASH OUTFLOW FOR CAPITAL EXPENDITURE . . . . . . . . . . . (32,359)
EQUITY DIVIDENDS PAID. . . . . . . . . . . . . . . . . . . . . (3,701)
--------
NET CASH OUTFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES
AND FINANCING . . . . . . . . . . . . . . . . . . . . . . (35,993)
FINANCING
Issue of ordinary share capital. . . . . . . . . . . . . . . . 16,413
New long term bank loan. . . . . . . . . . . . . . . . . . . . 12,124
Other new long term loans. . . . . . . . . . . . . . . . . . . 7,070
Other new short term loans . . . . . . . . . . . . . . . . . . 6,859
Capital element of hire purchase contracts . . . . . . . . . . (871)
--------
NET CASH INFLOW/(OUTFLOW) FROM FINANCING . . . . . . . . . . . 41,595
--------
INCREASE/(DECREASE) IN CASH IN THE YEAR. . . . . . . . . . . . 5,602
========
</TABLE>
F-42
<PAGE>
JUNCTION 15 LIMITED
NOTES TO THE CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1999
<TABLE>
<CAPTION>
1. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
1999
$
<S> <C>
Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,577)
Depreciation of tangible assets . . . . . . . . . . . . . . . . . . . 17,530
Decrease/(increase) in stocks . . . . . . . . . . . . . . . . . . . . 49,989
Increase in debtors . . . . . . . . . . . . . . . . . . . . . . . . . (137,752)
Increase in creditors within one year . . . . . . . . . . . . . . . . 108,789
---------
NET CASH OUTFLOW FROM OPERATING ACTIVITIES. . . . . . . . . . . . . . 6,979
=========
</TABLE>
<TABLE>
<CAPTION>
2. ANALYSIS OF NET DEBT
Other
1 January, Cash non-cash December
1999 flow changes 31, 1999
$ $ $ $
<S> <C> <C> <C> <C>
Net cash:
Cash at bank and in hand. . . . . . . 524 (484) 40
Bank overdrafts . . . . . . . . . . . (56,073) 6,086 (49,987)
-------- -------- ---------
(55,549) 5,602 (49,947)
-------- -------- ---------
Debt:
Finance leases. . . . . . . . . . . . (1,794) 871 (35) (958)
Debts falling due within one year . . (14,867) (6,859) - (21,726)
Debts falling due after one year. . . - (19,194) - (19,194)
-------- -------- ------ ---------
(16,661) (25,182) (35) (41,878)
-------- -------- ------ ---------
Net debt. . . . . . . . . . . . . . . (72,210) (19,580) (35) (91,825)
======== ======== ====== =========
</TABLE>
<TABLE>
<CAPTION>
3 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
1999
$
<S> <C>
(Decrease)/increase in cash in the year . . . . . . . . . . . . . . . 5,602
Cash inflow from increase in debt and lease financing . . . . . . . . (25,182)
---------
Change in net debt resulting from cash flows. . . . . . . . . . . . . (19,580)
New finance lease . . . . . . . . . . . . . . . . . . . . . . . . . . (35)
---------
MOVEMENT IN NET DEBT IN THE YEAR. . . . . . . . . . . . . . . . . . . (19,615)
Opening net debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (72,210)
---------
CLOSING NET DEBT. . . . . . . . . . . . . . . . . . . . . . . . . . . (91,825)
=========
</TABLE>
F-43
<PAGE>
JUNCTION 15 LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1999
1. ACCOUNTING POLICIES
1.1 ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention.
The financial statements have been prepared on a going concern basis
which assumes that the company will continue in operational existence for
the foreseeable future.
The validity of this assumption depends on the company being able to
trade profitably in the future and the continued support of the company's
bankers and owners. The financial statements do not include any adjustments
that would result if the company continued to make losses and such
support were withdrawn. If the company was unable to continue to trade,
adjustments would have to be made to reduce the value of assets to
their recoverable amounts, provide for further liabilities that may
arise and to reclassify fixed assets and long term liabilities as current
assets and liabilities. The directors consider it appropriate to prepare
the financial statements on a going concern basis on the basis that
the company will trade profitably and that the owners will support the
company for the foreseeable future.
1.2 TURNOVER
Turnover represents amounts receivable for goods and services net of VAT
and trade discounts.
1.3 TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost less depreciation. Depreciation
is provided at rates calculated to write off the cost less estimated
residual value of each asset over its expected useful life, as follows:
Computer equipment 3 - 5 years
Fixtures, fittings & equipment 5 - 7 years
1.4 LEASING AND HIRE PURCHASE COMMITMENTS
Assets obtained under hire purchase contracts and finance leases are
capitalised as tangible assets and depreciated over the shorter of the
lease term and their useful lives. Obligations under such agreements
are included in creditors net of the finance charge allocated
to future periods. The finance element of the rental payment is charged to
the profit and loss account so as to produce a constant periodic rate of
charge on the net obligation outstanding in each period.
Rentals payable under operating leases are charged against income on a
straight line basis over the lease term.
F-44
<PAGE>
1.5 STOCK AND WORK IN PROGRESS
Work in progress is valued at the lower of cost and net realisable value.
1.6 PENSIONS
The pension costs charged in the financial statements represent the
contributions payable by the company during the year in accordance with
SSAP 24.
1.7 DEFERRED TAXATION
Deferred taxation is provided at appropriate rates on all timing
differences using the liability method only to the extent that, in the
opinion of the directors, there is a reasonable probability that a
liability or asset will crystallise in the foreseeable future.
1.8 FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated into US $ at the rates of exchange ruling at the balance sheet
date. Transactions in UK Sterling currencies are translated at an
average rate of US $ 1.61704. All differences are taken to profit and loss
account.
1.9 GOVERNMENT GRANTS
Grants are credited to deferred revenue. Grants towards capital
expenditure are released to the profit and loss account over the expected
useful life of the assets. Grants towards revenue expenditure are
released to the profit and loss account as the related expenditure is
incurred.
1.10 COMPARATIVES
The financial statements have been prepared for the period which is not
a statutory accounting period.
The directors do not require comparatives, and hence none have been
prepared. Comparatives are available in the statutory accounts for the 6
months period ended 31 December 1999.
2 TURNOVER
The total turnover of the company for the year has been derived from
its principal activity wholly undertaken in the United Kingdom.
<TABLE>
<CAPTION>
3 OPERATING LOSS
1999
$
<S> <C>
Operating loss is stated after charging:
Depreciation of tangible assets . . . . . . . . . . . 17,530
Operating lease rentals . . . . . . . . . . . . . . . 3,409
Auditors' remuneration. . . . . . . . . . . . . . . . 5,660
========
</TABLE>
F-45
<PAGE>
<TABLE>
<CAPTION>
4 INTEREST PAYABLE
1999
$
<S> <C>
On bank loans and overdrafts. . . . . . . . . . . . . 3,607
On other loans wholly repayable within 5 years. . . . 2,794
Hire purchase interest. . . . . . . . . . . . . . . . 390
On overdue tax. . . . . . . . . . . . . . . . . . . . 121
-------
6,912
=======
</TABLE>
<TABLE>
<CAPTION>
5 TAXATION
1999
$
<S> <C>
U.K. CURRENT YEAR TAXATION
U.K. corporation tax at 20% . . . . . . . . . . . . . (1,819)
========
</TABLE>
<TABLE>
<CAPTION>
6 DIVIDENDS
1999
$
<S> <C>
Ordinary interim paid . . . . . . . . . . . . . . . . 3,701
=======
</TABLE>
<TABLE>
<CAPTION>
7 TANGIBLE FIXED ASSETS
FIXTURES, FITTINGS & EQUIPMENT
$
<S> <C>
COST
At 1 January 1999 . . . . . . . . . . . . . . . . . . 31,237
Additions . . . . . . . . . . . . . . . . . . . . . . 32,389
--------
At 31 December 1999 . . . . . . . . . . . . . . . . . 63,626
--------
DEPRECIATION
At 1 January 1999 . . . . . . . . . . . . . . . . . . 7,092
Charge for the year . . . . . . . . . . . . . . . . . 17,525
--------
At 31 December 1999 . . . . . . . . . . . . . . . . . 24,617
--------
NET BOOK VALUE
At 31 December 1999 . . . . . . . . . . . . . . . . . 39,009
========
At 31 December 1998 . . . . . . . . . . . . . . . . . 24,145
========
</TABLE>
F-46
<PAGE>
Included above are assets held under finance leases or hire purchase
contracts as follows:
<TABLE>
<CAPTION>
PLANT AND MACHINERY
1999
$
<S> <C>
NET BOOK VALUES
At 31 December 1999 . . . . . . . . . . . . . . . . . 1,161
========
DEPRECIATION CHARGE FOR THE YEAR
At 31 December 1999 . . . . . . . . . . . . . . . . . 1,089
========
</TABLE>
<TABLE>
<CAPTION>
8 STOCKS AND WORK IN PROGRESS
1999
$
<S> <C>
Work in progress. . . . . . . . . . . . . . . . . . . 5,363
-------
5,363
=======
</TABLE>
<TABLE>
<CAPTION>
9 DEBTORS
1999
$
<S> <C>
Trade debtors . . . . . . . . . . . . . . . . . . . . 191,311
Called up share capital not paid. . . . . . . . . . . 37
Other debtors . . . . . . . . . . . . . . . . . . . . 3,904
Prepayments and accrued income. . . . . . . . . . . . 36,610
--------
231,862
========
</TABLE>
<TABLE>
<CAPTION>
10 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
1999
$
<S> <C>
Bank loans and overdrafts . . . . . . . . . . . . . . 66,152
Net obligations under finance lease and hire
purchase contracts . . . . . . . . . . . . . . . . 958
Trade creditors . . . . . . . . . . . . . . . . . . . 38,859
Other taxes and social security costs . . . . . . . . 62,290
Other creditors . . . . . . . . . . . . . . . . . . . 6,207
Accruals and deferred income. . . . . . . . . . . . . 92,971
--------
267,437
========
</TABLE>
<TABLE>
<CAPTION>
11 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
1999
$
<S> <C>
Bank loans. . . . . . . . . . . . . . . . . . . . . . 12,124
Other loans . . . . . . . . . . . . . . . . . . . . . 7,070
--------
19,194
========
F-47
<PAGE>
ANALYSIS OF LOANS
Wholly repayable within five years. . . . . . . . . . 40,920
--------
40,920
Included in current liabilities . . . . . . . . . . . (21,726)
--------
19,194
========
</TABLE>
The aggregate amount of creditors for which security has been granted
amounted to $86,305.
The bank loan is secured by a debenture and a fixed and floating
charge over all assets of the company.
12 PENSION COSTS
The company operates a defined contribution pension scheme. The assets
of the scheme are held separately from those of the company in an
independently administered fund. The pension cost charge represents
contributions payable by the company to the fund and amounted to $13,311.
<TABLE>
<CAPTION>
13 SHARE CAPITAL
1999
BP
AUTHORISED
<S> <C>
700,000 Ordinary shares of BP0.10 each . . . . . . . . 70,000
26,200 Ordinary bearer shares of BP0.10 each . . . . . 2,620
73,800 'A' Ordinary shares of BP0.10 each. . . . . . . 7,380
100,000 'B' Ordinary shares of BP0.10 each . . . . . . 10,000
100,000 'C' Ordinary shares of BP0.10 each . . . . . . 10,000
--------
100,000
========
ALLOTTED, CALLED UP AND FULLY PAID
$
26,200 Ordinary bearer shares of BP0.10 each . . . . . 4,306
620 'A' Ordinary shares of BP0.10 each . . . . . . . . 103
9,140 'B' Ordinary shares of BP0.10 each . . . . . . . 1,521
6,040 'C' Ordinary shares of BP0.10 each . . . . . . . 1,005
--------
6,935
========
</TABLE>
All shares rank pari-passu in all respects save that the directors shall be
empowered to declare dividends to any one class of share only.
F-48
<PAGE>
<TABLE>
<CAPTION>
14 STATEMENT OF MOVEMENTS ON RESERVES
Share Profit
premium and loss
account account
$ $
<S> <C> <C>
Balance at 1 January 1999 . . . . . . . . . . . . . 11,981 (3,455)
Retained loss for the year. . . . . . . . . . . . . -- (40,371)
Premium on shares issued during the year. . . . . . 14,553 --
-------- --------
Balance at 31 December 1999 . . . . . . . . . . . . 26,534 (43,826)
======== ========
</TABLE>
<TABLE>
<CAPTION>
15 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS FUNDS
1999
$
<S> <C>
Loss for the financial year . . . . . . . . . . . . (36,670)
Dividends . . . . . . . . . . . . . . . . . . . . . (3,701)
--------
(40,371)
Proceeds from issue of shares . . . . . . . . . . . 16,413
--------
Net depletion in shareholders' funds. . . . . . . . (23,958)
Opening shareholders' funds . . . . . . . . . . . . 13,601
--------
Closing shareholders' funds . . . . . . . . . . . . (10,357)
========
</TABLE>
16 FINANCIAL COMMITMENTS
At 31 December 1999 the company had annual commitments under
non-cancellable operating leases as follows:
<TABLE>
<CAPTION>
1999
$
<S> <C>
LAND AND BUILDINGS
Expiry date:
Between two and five years. . . . . . . . . . . . . 41,800
========
</TABLE>
<TABLE>
<CAPTION>
17 DIRECTORS' EMOLUMENTS
1999
$
<S> <C>
Emoluments for qualifying services. . . . . . . . . 64,682
Company pension contributions to money
purchase schemes . . . . . . . . . . . . . . . . . 2,911
--------
67,593
========
</TABLE>
F-49
<PAGE>
18 EMPLOYEES
<TABLE>
<CAPTION>
NUMBER OF EMPLOYEES
The average monthly number of employees (including directors) during
the year was:
1999
Number
<S> <C>
Sales and management. . . . . . . . . . . . . . . . 6
=========
EMPLOYMENT COSTS
1999
$
Wages and salaries. . . . . . . . . . . . . . . . . 277,749
Social security costs . . . . . . . . . . . . . . . 26,979
Other pension costs . . . . . . . . . . . . . . . . 13,311
---------
318,039
=========
</TABLE>
19 CONTROL
On 9 March 2000, the company became 100% subsidiary of Vizacom Inc., a
company registered the United States of America.
20 RELATED PARTY TRANSACTIONS
During the year, the company paid $57,133 for subcontract services
from Junction 15 (London) Limited, a company in which I.C. McCalla, a
director of the company has a beneficial interest. On the balance sheet
date, the balance owed between the two companies was $nil.
F-50
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders' of P.C. Workstation Rentals, Inc., and
Storageland, Inc.
We have audited the combined balance sheets of P.C. Workstation Rentals,
Inc., and Storageland, Inc. (collectively, the "Companies"), both of which are
under common ownership and common management, as of December 31, 1999 and 1998,
and the related combined statements of operations and retained earnings and of
combined cash flows for the years then ended. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of the Companies at December
31, 1999 and 1998 and the results of their combined operations and their
combined cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in Footnote 12 to the combined financial statements, the
Companies were acquired by Vizacom, Inc. on March 27, 2000.
Our audits were conducted for the purpose of forming an opinion on the
basic combined financial statements taken as a whole. The supplemental schedules
listed in the table of contents are presented for purposes of additional
analysis of the basic combined financial statements rather than to present the
combined financial position and combined results of operations of the individual
companies and are not a required part of the basic combined financial
statements. These supplemental schedules are the responsibility of the
Companies' management. Such supplemental schedules have been subjected to the
auditing procedures applied in our audits of the basic combined financial
statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic combined financial statements taken as a
whole.
/s/ Deloitte & Touche LLP
March 23, 2000 (March 27, 2000 as to Note 12)
F-51
<PAGE>
P.C. WORKSTATION RENTALS, INC., AND STORAGELAND, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash. . . . . . . . . . . . . . . . . . . . . . . . $ 457,850 $ 229,226
Accounts receivable (net of allowance for doubtful
accounts of $168,511 and $121,976, respectively)
(Notes 2, 5, and 11). . . . . . . . . . . . . . . 3,692,224 2,617,251
Inventories (Notes 2 and 5) . . . . . . . . . . . . 567,836 187,140
Prepaid expenses. . . . . . . . . . . . . . . . . . 3,426 -
------------ ------------
Total current assets. . . . . . . . . . . . . . . 4,721,336 3,033,617
PROPERTY AND EQUIPMENT - Net (Notes 2 and 3). . . . . 6,189 13,108
DEFERRED TAX ASSET (Notes 2 and 7). . . . . . . . . . 1,949 9,280
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . 16,955 16,955
------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . $ 4,746,429 $ 3,072,870
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit (Note 5). . . . . . . . . $ 1,748,131 $ 779,732
Notes payable (Note 6). . . . . . . . . . . . . . . 850,000 --
Accounts payable and accrued expenses . . . . . . . 1,340,160 1,509,234
Accrued pension (Note 9). . . . . . . . . . . . . . 37,900 39,078
Deferred revenue (Note 2) . . . . . . . . . . . . . 8,388 173,858
------------ ------------
Total current liabilities . . . . . . . . . . . . 3,984,579 2,501,902
------------ ------------
COMMITMENTS (Note 10)
SHAREHOLDERS' EQUITY:
Common stock (Note 8) . . . . . . . . . . . . . . . 12 12
Contributed capital . . . . . . . . . . . . . . . . 17,108 17,108
Retained earnings . . . . . . . . . . . . . . . . . 781,015 590,133
Treasury stock (Note 8) . . . . . . . . . . . . . . (36,285) (36,285)
------------ ------------
Total shareholders' equity. . . . . . . . . . . . 761,850 570,968
------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . $ 4,746,429 $ 3,072,870
============ ============
</TABLE>
See notes to combined financial statements.
F-52
<PAGE>
P.C. WORKSTATION RENTALS, INC., AND STORAGELAND, INC.
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
NET SALES (Notes 2 and 11). . . . . . . . . . . . . . $15,928,205 $11,431,882
COST OF SALES . . . . . . . . . . . . . . . . . . . . 13,094,364 9,614,625
------------ ------------
GROSS PROFIT. . . . . . . . . . . . . . . . . . . . . 2,833,841 1,817,257
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES. . . . . . . . . . . . . . . . . . . . . . 2,371,756 1,600,229
------------ ------------
INCOME FROM OPERATIONS. . . . . . . . . . . . . . . . 462,085 217,028
INTEREST EXPENSE (Notes 5 and 6). . . . . . . . . . . 83,031 34,361
------------ ------------
INCOME BEFORE PROVISION FOR INCOME
TAXES . . . . . . . . . . . . . . . . . . . . . . . 379,054 182,667
PROVISION FOR INCOME TAXES (Notes 2 and 7). . . . . . 12,541 36,371
------------ ------------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . 366,513 146,296
RETAINED EARNINGS, BEGINNING OF YEAR. . . . . . . . . 590,133 531,487
LESS: NET DISTRIBUTIONS TO PRINCIPAL
SHAREHOLDERS (Note 4) . . . . . . . . . . . . . . . (175,631) (87,650)
------------ ------------
RETAINED EARNINGS, END OF YEAR. . . . . . . . . . . . $ 781,015 $ 590,133
============ ============
</TABLE>
See notes to combined financial statements.
F-53
<PAGE>
P.C. WORKSTATION RENTALS, INC., AND STORAGELAND, INC.
STATEMENTS OF COMBINED CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
OPERATING ACTIVITIES:
<S> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . $ 366,513 $ 146,296
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . 6,829 7,331
Provision for deferred taxes. . . . . . . . . . . 7,331 (10,459)
Provision for doubtful accounts . . . . . . . . . 46,535 107,460
Changes in assets and liabilities:
Increase in accounts receivable . . . . . . . . (1,121,508) (1,355,480)
Decrease (increase) in inventories. . . . . . . (380,696) 46,299
Increase in prepaid expenses. . . . . . . . . . (3,426) --
Increase in other assets. . . . . . . . . . . . -- (15,000)
Increase (decrease) in accounts payable and
accrued expenses. . . . . . . . . . . . . . . (169,074) 623,850
Increase (decrease) in accrued pension. . . . . (1,178) 24,078
Increase (decrease) in deferred revenue . . . . (165,470) 2,904
------------ ------------
Net cash used in operating activities . . . . (1,414,144) (422,721)
------------ ------------
FINANCING ACTIVITIES:
Net borrowings from revolving lines-of-credit . . . 968,399 535,346
Proceeds from issuance of notes payable . . . . . . 850,000 --
Repayment of loans from shareholders. . . . . . . . -- (75,000)
Acquisition of treasury stock . . . . . . . . . . . -- (36,285)
Net distributions to shareholders . . . . . . . . . (175,631) (87,650)
------------ ------------
Net cash provided by financing activities . . 1,642,768 336,411
------------ ------------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . 228,624 (86,310)
CASH BALANCE, BEGINNING OF YEAR . . . . . . . . . . . 229,226 315,536
------------ ------------
CASH BALANCE, END OF YEAR . . . . . . . . . . . . . . $ 457,850 $ 229,226
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . $ 87,518 $ 34,361
============ ============
Income taxes paid . . . . . . . . . . . . . . . . . $ 7,550 $ 13,583
============ ============
</TABLE>
See notes to combined financial statements.
F-54
<PAGE>
P.C. WORKSTATION RENTALS, INC., AND STORAGELAND, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying combined financial statements for the years ended December
31, 1999 and 1998 contain the assets, liabilities and results of operations
of P.C. Workstation Rentals, Inc. ("PWR") and Storageland, Inc.
("Storageland"). PWR and Storageland are under common ownership and
common management. PWR and Storageland are hereinafter collectively
referred to as the "Companies."
PWR is an independent value added reseller and integrator of
information technology products specializing in serving the high-end
graphics communication industry. Storageland is a personal computer product
reseller and integrator servicing a variety of industries. The Companies'
principal geographic market area is the greater New York metropolitan
region. PWR provides assistance to its customers with respect to every
stage of the purchase and implementation of network and internet backbone
systems. Such assistance includes analyzing and advising with regard to
hardware and software solutions, installation, training, on-line and
telephone support, and systems integration and maintenance.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION - The financial statements of PWR and
Storageland are presented on a combined basis since these entities are
under common ownership and common management. All significant intercompany
accounts and transactions have been eliminated in combination. See Note 13.
REVENUE RECOGNITION - Revenues are recognized when products are shipped
and services are provided.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
UNVENTORIES - Inventories are stated at the lower of cost or market
and consist of electronic components and computer systems, which are
purchased directly from the Companies' suppliers. Cost is determined using
the first-in, first-out method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is calculated on a straight-line basis over the estimated
useful lives of the assets, which range from three to seven years.
F-55
<PAGE>
INCOME TAXES - During the fiscal year ended December 31, 1999, the
Companies have each elected to be considered as an S Corporation under the
provisions of the Internal Revenue Code, and accordingly, no Federal taxes
have been provided in the accompanying combined financial statements. New
York State requires S Corporations to pay a state tax at the corporate
level equal to the difference between the corporate and personal state
income tax rates.
During the fiscal year ended December 31, 1998, Storageland was a C
Corporation under the provisions of the Internal Revenue Code, and the
Company provided for all federal and state income taxes on its earnings.
The Companies account for state income taxes pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that
have been included in the Companies' financial statements and income tax
returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial accounting and
tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
DEFERRED REVENUE - Consists of an advance payment from a customer for
the purchase of inventory. The revenue will be recognized upon delivery and
acceptance by the customer.
IMPAIRMENT OF LONG-LIVED ASSETS - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long Lived Assets to be Disposed of," the
Companies review their long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets
may not be fully recoverable. To determine recoverability of its long-lived
assets, the Companies evaluate the probability that future undiscounted net
cash flows will be less than the carrying amount of the assets. Impairment
costs, if any, are measured by comparing the carrying amount of the related
assets to their fair value.
FAIR VALUE OF FINANCIAL INSTRUMENTS - It is management's belief that
the carrying amounts of the Companies' financial instruments (accounts
receivable, accounts payable, revolving lines of credit and notes payable)
approximate their fair value at December 31, 1999 and 1998 due to the short
maturity of these instruments.
The Companies estimate an allowance for doubtful accounts based on the
creditworthiness of their customers, as well as on general economic
conditions.
Consequently, an adverse change in those factors could affect the
Companies' estimate of its bad debts. The Companies, as a policy, do not
require collateral from their customers.
F-56
<PAGE>
3. PROPERTY AND EQUIPMENT - NET
Property and equipment - net at December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Computer equipment . . . . . . . $ 6,281 $ 6,281
Furniture and fixtures . . . . . 34,222 34,222
---------- ---------
Total 40,503 40,503
Less accumulated depreciation
and amortization. . . . . . (34,314) (27,485)
---------- ---------
Property and equipment - net. . $ 6,189 $ 13,018
========== =========
</TABLE>
4. RELATED PARTY TRANSACTIONS
a. Net distributions to shareholders includes capital contributions
made to Storageland by Storageland's principal shareholders during
1999 to fund the operations of the business and provide cash flow for
the entity.
b. Distributions to shareholders were paid by PWR to its two
principal shareholders.
5. REVOLVING LINES OF CREDIT
PWR maintains two revolving lines of credit with two separate financial
institutions. The first line has a $250,000 borrowing limit. Borrowings
under this revolving line of credit are to be repaid in equal monthly
installments equivalent to 1/36 of the outstanding amount as of the last
borrowing and is subject to interest at the prime rate plus one-half
percent at December 31, 1999 and two percent at December 31, 1998 (9.00%
and 9.75%, respectively). Commitment fees are equal to $2,500 per annum.
For the years ended December 31, 1999 and 1998, the principal outstanding
under this line of credit agreement amounted to $944,172 and $244,910,
respectively. Such line of credit is collateralized by a lien on PWR's
assets. Subsequent to December 31, 1999, PWR extended this line of credit
through June 30, 2000, and increased the line of credit from $250,000 to
$1,000,000, which accommodated the increase in borrowings at December 31,
1999. Concurrent with this extension, certain terms of this line of credit
were modified as follows: the previously existing repayment period of three
years has been rescinded and replaced by an indefinite repayment term and
the borrowing is subject to interest at prime plus one half percent.
The second revolving line of credit has a $400,000 borrowing limit.
Borrowings under this revolving line of credit may be repaid within 40 days
without interest. On the 41st day, interest begins accruing at a rate of
1.25% per month. For the years ended December 31, 1999 and 1998, (the line
of credit was executed in August 1998) the principal outstanding under this
line of credit agreement amounted to $803,959 and $534,822, respectively.
Such line is collateralized by PWR's inventory. Subsequent to December 31,
1999, PWR increased this revolving line of credit from $400,000 to
$1,000,000, with no stated expiration date, which accommodated the increase
in borrowings at December 31, 1999.
F-57
<PAGE>
6. NOTES PAYABLE
PWR entered into two notes payable with a financial institution during
1999. Both notes bear interest at prime plus one-half percent (9.00% at
December 31, 1999). Amounts outstanding under these arrangements were
$280,000 and $570,000, respectively. The notes expired on January 24, 2000
and February 7, 2000, respectively. The $280,000 note was repaid in
February 2000, while the term of the $570,000 note was extended to May 18,
2000.
7. INCOME TAXES
At December 31, 1999 and 1998, the Companies recognized a combined
deferred tax provision (benefit) of $5,731 and ($10,459), respectively. The
deferred tax asset is primarily the result of temporary tax differences
relating to depreciation and the allowance for doubtful accounts.
For financial reporting purposes, no valuation allowance has been
recognized as of December 31, 1999 or 1998.
The combined provision for income taxes for the years ended December
31, 1999 and 1998 for both companies are comprised of:
<TABLE>
<CAPTION>
FEDERAL STATE AND LOCAL TOTAL
1999
<S> <C> <C> <C>
Current . . . . . . . . $ -- $ 5,210 $ 5,210
Deferred. . . . . . . . 5,852 1,479 7,331
--------- --------- ---------
$ 5,852 $ 6,689 $ 12,541
========= ========= =========
1998
Current . . . . . . . . $ 31,326 $ 15,504 $ 46,830
Deferred. . . . . . . . (6,564) (3,895) (10,459)
--------- --------- ---------
$ 24,762 $ 11,609 $ 36,371
========= ========= =========
</TABLE>
F-58
<PAGE>
8. COMMON AND TREASURY STOCK
Common stock at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
PWR - No par value per share,
200 shares authorized, 10 shares
outstanding at both December 31,
1999 and 1998 . . . . . . . . . . . . $ 10.00 $ 10.00
========= =========
Storageland - No par value per share,
3 shares authorized, 2 shares
outstanding at December 31, 1999. . . $ 2.00 $ 2.00
========= =========
Treasury stock of Storageland at
December 31, 1999 and 1998,
1 share purchased at cost . . . . . . $(36,285) $(36,285)
========= =========
</TABLE>
9. ACCRUED PENSION
PWR maintains a qualified employee retirement plan (the "Plan") which
is a defined contribution plan designed to provide benefits for full-time
employees. Benefits are payable in the event of termination of employment,
disability, death or retirement as defined in the Plan. Employees who have
completed one year of continuous service and have attained his/her 21st
birthday are eligible to become a participant of the Plan. Employees are
not permitted to contribute to the Plan. PWR has no obligation to
contribute to the Plan, but may contribute on a discretionary basis.
Employees vest in the Plan over a six-year period, zero percent in the
first year of employment and 20 percent per year thereafter. PWR's
contributions under the Plan approximated $38,000 during both 1999 and
1998.
10. COMMITMENTS
The Companies are obligated under a noncancelable operating lease
agreement for the rental of office and warehouse space. The Companies'
lease expires in February of fiscal 2004. Minimum annual commitments for
rentals through fiscal 2004 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
DECEMBER 31,
<S> <C>
2000. . . . . . . . $ 60,000
2001. . . . . . . . 60,000
2002. . . . . . . . 60,000
2003. . . . . . . . 60,000
2004. . . . . . . . 10,000
Thereafter . . . . . . --
----------
Total . . . . . . . $ 250,000
==========
</TABLE>
Rent expense for the years ended December 31, 1999 and 1998 aggregated
approximately $61,000 and $59,000, respectively.
F-59
<PAGE>
11. SIGNIFICANT CUSTOMERS AND VENDORS
During the year ended December 31, 1999, one customer represented at
least 10% of the Companies' combined net sales. Such customer accounted for
15.90% of the companies' combined net sales as of December 31, 1999.
During the year ended December 31, 1998, one customer represented at
least 10% of the Companies' combined net sales. Such customer accounted for
23.40% of the Companies' combined net sales as of December 31, 1998.
During the year ended December 31, 1999, three customers represented
17.77%, 13.30%, and 10.81% of the Companies' combined net accounts
receivable balance.
During the year ended December 31, 1998, one customer represented
13.50% of the Companies' combined net accounts receivable balance.
During the year ended December 31, 1999, the Companies' purchases from
two vendors represented at least 10% of the Companies' combined purchases.
Purchases from such vendors represented 37.41% and 10.67% of the Companies'
combined purchases for the year ended December 31, 1999.
During the year ended December 31, 1998, the Companies' purchases from
two vendors represented at least 10% of the Companies' combined purchases.
Purchases from such vendors represented 26.8% and 14.4% of the Companies'
combined purchases for the year ended December 31, 1998.
12. SUBSEQUENT EVENT / SALE OF BUSINESSES
In February 2000, Storageland and VDOFX, Inc., another company owned
by the shareholders of PWR, merged into PWR. On November 12, 1999, the
Companies entered into a nonbinding letter of intent to be acquired by
Vizacom Inc., ("Vizacom") a publicly held entity. The aggregate purchase
price of $6,000,000 will be payable in both cash and Vizacom stock. The
acquisition is subject to Vizacom raising a certain level of financing and
the completion of due diligence by both parties. The transaction was
consummated on March 27, 2000. Upon the closing of this merger, PWR has
become a C Corporation.
F-60
<PAGE>
P.C. WORKSTATION RENTALS, INC., AND STORAGELAND, INC.
SUPPLEMENTAL SCHEDULE OF COMBINING BALANCE SHEETS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
P.C.
WORKSTATION STORAGELAND INTERCOMPANY COMBINED
RENTALS, INC. INC. ELIMINATIONS AMOUNTS
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash . . . . . . . . . . . . . . $ 353,793 $ 104,057 $ -- $ 457,850
Accounts receivable - net
(Notes 2, 5, and 11) . . . . . 3,634,677 57,547 -- 3,692,224
Inventories (Notes 2 and 5). . . 567,836 -- -- 567,836
Prepaid expenses . . . . . . . . -- 3,426 -- 3,426
------------ ----------- ------------ -----------
Total current assets. . . . . 4,556,306 165,030 -- 4,721,336
PROPERTY AND EQUIPMENT -
Net (Notes 2 and 3). . . . . . . 5,142 1,047 -- 6,189
INTERCOMPANY RECEIVABLES
(Note 2) . . . . . . . . . . . . -- 43,329 (43,329) --
DEFERRED TAX ASSET
(Notes 2 and 7). . . . . . . . . 1,918 31 -- 1,949
OTHER ASSETS . . . . . . . . . . . 16,955 -- -- 16,955
------------ ----------- ------------ -----------
TOTAL . . . . . . . . . . . . $ 4,580,321 $ 209,437 $ (43,329) $4,746,429
============ =========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit
(Note 5) . . . . . . . . . . . $ 1,748,131 $ -- $ -- $1,748,131
Note payable (Note 6). . . . . . 850,000 -- -- 850,000
Accounts payable and accrued
expenses . . . . . . . . . . . 1,312,611 27,549 -- 1,340,160
Accrued pension (Note 9) . . . . 37,900 -- -- 37,900
Deferred revenue (Note 2). . . . 8,388 -- -- 8,388
------------ ----------- ------------ -----------
Total current liabilities. . . 3,957,030 27,549 -- 3,984,579
------------ ----------- ------------ -----------
INTERCOMPANY PAYABLES
(Note 2) . . . . . . . . . . . . 43,329 -- (43,329)
COMMITMENTS (Note 10)
SHAREHOLDERS' EQUITY:
Common stock (Note 8). . . . . . 10 2 -- 12
Contributed capital. . . . . . . 9,610 7,498 -- 17,108
Retained earnings. . . . . . . . 570,342 210,673 -- 781,015
Treasury stock (Note 8). . . . . -- (36,285) -- (36,285)
------------ ----------- ------------ -----------
Total shareholders' equity . . 579,962 181,888 -- 761,850
------------ ----------- ------------ -----------
TOTAL. . . . . . . . . . . . . . . $ 4,580,321 $ 209,437 $ (43,329) $4,746,429
============ =========== ============ ===========
</TABLE>
F-61
<PAGE>
P.C. WORKSTATION RENTALS, INC., AND STORAGELAND, INC.
SUPPLEMENTAL SCHEDULE OF STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
P.C.
WORKSTATION STORAGELAND INTERCOMPANY COMBINED
RENTALS, INC. INC. ELIMINATIONS AMOUNTS
<S> <C> <C> <C> <C>
NET SALES (Notes 2 and 11) . . . $ 14,325,574 $ 3,027,721 $(1,425,090) $15,928,205
COST OF SALES. . . . . . . . . . 11,883,140 2,636,314 (1,425,090) 13,094,364
------------- ------------- ------------ ------------
GROSS PROFIT . . . . . . . . . 2,442,434 391,407 -- 2,833,841
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. . . . 2,082,388 289,368 -- 2,371,756
------------- ------------- ------------ ------------
INCOME FROM OPERATIONS . . . . . 360,046 102,039 -- 462,085
INTEREST EXPENSE (Notes 5 and
6) . . . . . . . . . . . . . . 81,491 1,540 -- 83,031
------------- ------------- ------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES . . . . . . . 278,555 100,499 -- 379,054
------------- ------------- ------------ ------------
PROVISION FOR INCOME TAXES
(Notes 2 and 7). . . . . . . . 4,216 8,325 -- 12,541
------------- ------------- ------------ ------------
NET INCOME . . . . . . . . . . . 277,539 92,174 -- 366,513
RETAINED EARNINGS,
BEGINNING OF YEAR. . . . . . . 491,634 98,499 -- 590,133
NET (DISTRIBUTIONS TO)
CONTRIBUTIONS FROM
PRINCIPAL SHAREHOLDERS . . . . (195,631) 20,000 -- (175,631)
------------- ------------- ------------ ------------
RETAINED EARNINGS,
END OF YEAR. . . . . . . . . . $ 573,542 $ 210,673 $ -- $ 781,015
============= ============= ============ ============
</TABLE>
F-62
<PAGE>
P.C. WORKSTATION RENTALS, INC., AND STORAGELAND, INC.
SUPPLEMENTAL SCHEDULE OF COMBINING BALANCE SHEETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
P.C.
WORKSTATION STORAGELAND INTERCOMPANY COMBINED
RENTALS, INC. INC. ELIMINATIONS AMOUNTS
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash . . . . . . . . . . . . . $ 225,265 $ 3,961 $ -- $ 229,226
Accounts receivable - net
(Notes 2, 5, and 11) . . . . 1,948,848 668,403 -- 2,617,251
Inventories (Notes 2 and 5). . 143,061 44,079 -- 187,140
----------- ----------- ----------- -----------
Total current assets. . . . 2,317,174 716,443 -- 3,033,617
PROPERTY AND EQUIPMENT
Net (Notes 2 and 3). . . . . . 9,877 3,141 -- 13,018
INTERCOMPANY RECEIVABLES
(Note 2) . . . . . . . . . . . 102,478 -- (102,478) --
DEFERRED TAX ASSET (Notes 2
and 7) . . . . . . . . . . . . 1,249 8,031 -- 9,280
OTHER ASSETS . . . . . . . . . . 16,955 -- -- 16,955
----------- ----------- ------------ -----------
TOTAL. . . . . . . . . . . . . . $2,447,733 $ 727,615 $ (102,478) $3,072,870
=========== =========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit
(Note 5). . . . . . . . . . . $ 779,732 $ -- $ -- $ 779,732
Accounts payable and
accrued expenses. . . . . . . 958,811 550,423 -- 1,509,234
Accrued pension (Note 9) . . . 34,078 5,000 -- 39,078
Deferred revenue (Note 2). . . 173,858 -- -- 173,858
----------- ----------- ------------ -----------
Total current liabilities . . 1,946,479 555,423 -- 2,501,902
----------- ----------- ------------ -----------
INTERCOMPANY PAYABLES
(Note 2) . . . . . . . . . . . -- 102,478 (102,478) --
DEFERRED TAX LIABILITY
(Notes 2 and 7). . . . . . . . -- -- -- --
COMMITMENTS (Note 10)
SHAREHOLDERS' EQUITY:
Common stock (Note 8). . . . . 10 2 -- 12
Contributed capital. . . . . . 9,610 7,498 -- 17,108
Retained earnings. . . . . . . 491,634 98,499 -- 590,133
Treasury stock (Note 8) -- (36,285) -- (36,285)
----------- ----------- ------------ -----------
Total shareholders' equity. . 501,254 69,714 -- 570,968
----------- ----------- ------------ -----------
TOTAL. . . . . . . . . . . . . $2,447,733 $ 727,615 $ (102,478) $3,072,870
=========== =========== ============ ===========
</TABLE>
F-63
<PAGE>
P.C. WORKSTATION RENTALS, INC. AND STORAGELAND, INC.
SUPPLEMENTAL SCHEDULE OF COMBINING STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
P.C.
WORKSTATION STORAGELAND INTERCOMPANY COMBINED
RENTALS, INC. INC. ELIMINATIONS AMOUNTS
<S> <C> <C> <C> <C>
NET SALES (Notes 2 and 11) . . . $8,762,724 $3,301,389 $ (632,231) $11,431,882
COST OF SALES. . . . . . . . . . 7,351,457 2,895,399 (632,231) 9,614,625
----------- ----------- ------------ ------------
GROSS PROFIT . . . . . . . . . 1,411,267 405,990 -- 1,817,257
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. . . . 1,287,972 312,257 -- 1,600,229
----------- ----------- ------------ ------------
INCOME FROM OPERATIONS . . . . . 123,295 93,733 -- 217,028
INTEREST EXPENSE (Notes 5
and 6) . . . . . . . . . . . . 30,445 3,916 -- 34,361
----------- ----------- ------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES . . . . . . . 92,850 89,817 -- 182,667
----------- ----------- ------------ ------------
PROVISION FOR INCOME TAXES
(Notes 2 and 7). . . . . . . . 2,791 33,580 -- 36,371
----------- ----------- ------------ ------------
NET INCOME . . . . . . . . . . . 90,059 56,237 -- 146,296
RETAINED EARNINGS,
BEGINNING OF YEAR. . . . . . . 489,225 42,262 -- 531,487
NET DISTRIBUTIONS TO
PRINCIPAL SHAREHOLDERS . . . . (87,650) -- -- (87,650)
----------- ----------- ------------ ------------
RETAINED EARNINGS,
END OF YEAR. . . . . . . . . . $ 491,634 $ 98,499 $ -- $ 590,133
=========== =========== ============ ============
</TABLE>
F-64
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: April 11, 2000 VIZACOM INC.
By: /s/ Mark E. Leininger
Mark E. Leininger
President and Chief Operating Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-KSB has been signed on April 11, 2000 by
the following persons in the capacities indicated. Each person whose signature
appears below constitutes and appoints Mark E. Leininger, with full power of
substitution, his/her true and lawful attorney-in-fact and agent to do any and
all acts and things in his/her name and on his/her behalf in his/her capacities
indicated below which he may deem necessary or advisable to enable Vizacom Inc.
to comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with this Annual Report on Form 10-KSB, including specifically, but
not limited to, power and authority to sign for him/her in his/her name in the
capacities stated below, any and all amendments thereto, 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 such connection, as
fully to all intents and purposes as he/her might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
/s/ Mark E. Leininger President, Chief Executive Officer and Director
- ---------------------------- (Principal Executive Officer)
Mark E. Leininger
/s/ Alan W. Schoenbart Vice President - Finance and Chief Financial
- ---------------------------- Officer (Principal Account Officer)
Alan W. Schoenbart
/s/ Marc E. Jaffe Chairman of the Board, Secretary and Director
- ----------------------------
Marc E. Jaffe
/s/ Norman W. Alexander Director
- -----------------------------
Norman W. Alexander
/s/ Vincent DiSpigno Vice President and Director
- -----------------------------
Vincent DiSpigno
/s/ Werner G. Haase Director
- -----------------------------
Werner G. Haase
/s/ Neil M. Kaufman Director
- -----------------------------
Neil M. Kaufman
/s/ David N. Salav Vice President and Director
- -----------------------------
David N. Salav
-134-
<PAGE>
VIZACOM INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.1 Composite of Certificate of Incorporation of the Company, as amended
to date. (Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K (Date of Report: July 1, 1999)
(Commission File Number: 1-14076), filed with the Commission on July
15, 1999.)
3.2 By-laws of the Company, as amended. (Incorporated by reference to
Exhibit 3.3 to the Company's Annual Report on Form 10-KSB
(Commission File Number: 1-14076), for the year ended December
31, 1997, filed with the Commission on April 16, 1998.)
4.1 Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-KSB (Commission
File Number: 1-14076), for the year ended December 31, 1997,
filed with the Commission on April 16, 1998.)
10.1 Company 1994 Long Term Incentive Plan, as amended to date.
(Incorporated by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K (Date of Report: July 1, 1999) (Commission File
Number: 1-14076), filed with the Commission on July 15, 1999.)
10.2 Company Outside Director and Advisor Stock Option Plan, as amended to
date. (Incorporated by reference to Exhibit 10.4 to the
Company's Current Report on Form 8-K (Date of Report: July 1,
1999) (Commission File Number: 1-14076), filed with the Commission
on July 15, 1999.)
10.3 SPC 1989 Stock Plan. (Incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-8 (Registration
Number: 333-19509), filed with the Commission on January 10, 1997.)
10.4 SPC 1991 Stock Option Plan. (Incorporated by reference to Exhibit
4.3 to the Company's Registration Statement on Form S-8
(Registration Number: 333-19509), filed with the Commission on
January 10, 1997.)
10.5 Form of Indemnification Agreement between the Registrant and its
executive officers and directors. (Incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form SB-2
(Registration Number: 33-97184), filed with the Commission on
September 21, 1995.)
10.6 Form of Underwriters' Purchase Option (Specimen). (Incorporated by
reference to Exhibit 10.18 to the Company's Annual Report on Form
10-KSB, for the year ended December 31, 1997, filed with the
Commission on April 16, 1998.)
10.7 Registration Rights Agreement, dated July 31, 1996, between the
Company and the former stockholders of Serif Inc. and Serif (Europe)
Limited. (Incorporated by reference to Exhibit 10.31 to the Company's
Current Report on Form 8-K (Date of Report: July 31, 1996)
(Commission File Number: 1-14076), filed with the Commission on August
13, 1996.)
10.8 Lease Agreement, dated September 7, 1995, between Community Towers LLC
and the Company, for facilities located at 111 North Market Street,
San Jose, California. (Incorporated by reference to Exhibit 10.22
to Software Publishing Corporation's Annual Report on Form 10-K
(Commission File Number: 0-14025), for the fiscal year ended
September 30, 1995, filed with the Commission on December 29, 1995.)
10.9 Option, dated October 23, 1997, issued to Ronald L. Altman.
(Incorporated by reference to Exhibit 10.53 to the Company's Quarterly
Report on Form 10-QSB (Commission File Number: 1-14076), for the
quarter ended September 30, 1997, filed with the Commission on
November 14, 1997.)
10.10 Rights Agreement, dated as of March 31, 1998, between the Company
and American Stock Transfer & Trust Company. (Incorporated by
reference to Exhibit 10.51 to the Company's Annual Report on Form
10-KSB (Commission File Number: 1-14076), for the year ended
December 31, 1997, filed with the Commission on April 16, 1998.)
10.11 Warrant, dated April 7, 1998, registered in the name of Boru
Enterprises, Inc., with respect to 50,000 shares of Common Stock
(before giving effect to the Company's one-for-three reverse stock
split made effective
-135-
<PAGE>
VIZACOM INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
May 27, 1998). (Incorporated by reference to Exhibit 10.54 to the
Company's Quarterly Report on Form 10-QSB (Commission File Number:
1-14076), for the quarter ended March 31, 1998, filed with the
Commission on May 13, 1998.)
10.12 Stock Exchange Agreement, dated December 15, 1998, between the Company
and Seafish Partners. (Incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K (Date of Report: December 15,
1998) (Commission File Number: 1-14076), filed with the
Commission on December 16, 1998.)
10.13 Letter Agreement, dated January 4, 1999, between the Company and
Seafish Partners. (Incorporated by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K (Date of Report: January 11,
1999) (Commission File Number: 1-14076), filed with the Commission
on January 20, 1999.)
10.14 Consulting Agreement between the Company and Target Capital Corp.
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K (Date of Report: January 11, 1999) (Commission
File Number: 1-14076), filed with the Commission on January 20,
1999.)
10.15 Consulting Agreement between the Company and Michel Ladovitch.
(Incorporated by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K (Date of Report: January 11, 1999)
(Commission File Number: 1-14076), filed with the Commission on
January 20, 1999.)
10.16 Warrant Certificate, with respect to 520,000 shares of Common
Stock, registered in the name of Target Capital Corp. (Incorporated
by reference to Exhibit 10.5 to the Company's Current Report on Form
8-K (Date of Report: January 11, 1999) (Commission File Number:
1-14076), filed with the Commission on January 20, 1999.)
10.17 Warrant Certificate, with respect to 120,000 shares of Common Stock,
registered in the name of United Krasna Organizations. (Incorporated
by reference to Exhibit 10.6 to the Company's Current Report on
Form 8-K (Date of Report: January 11, 1999) (Commission File
Number: 1-14076), filed with the Commission on January 20, 1999.)
10.18 Warrant Certificate, with respect to 260,000 shares of Common Stock,
registered in the name of Seafish Partners. (Incorporated by
reference to Exhibit 10.8 to the Company's Current Report on Form 8-K
(Date of Report: January 11, 1999) (Commission File Number:
1-14076), filed with the Commission on January 20, 1999.)
10.19 Warrant Certificate, with respect to 600,000 shares of Common Stock,
registered in the name of Regency Investment Partners. (Incorporated
by reference to Exhibit 10.7 to the Company's Current Report on Form
8-K (Date of Report: January 11, 1999) (Commission File Number:
1-14076), filed with the Commission on January 20, 1999.)
10.20 Letter Agreement, dated December 17, 1998, between the Company Marc
E. Jaffe. (Incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K (Date of Report: January 11, 1999)
(Commission File Number: 1-14076), filed with the Commission on
January 20, 1999.)
10.21 Advice of Borrowing Terms, dated December 29, 1998, between Serif
(Europe) Limited and National Westminster Bank PLC, and Mortgage
Debenture, dated October 9, 1989, between Serif (Europe) Limited
and National Westminster Bank PLC. (Incorporated by reference to
Exhibit 10.45 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1998 (Commission File Number
1-14076), filed with the Commission on April 15, 1999.)
-136-
<PAGE>
VIZACOM INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.22 Letter Agreement, dated April 20, 1999, between the Company
and Seafish Partners. (Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-QSB for the period
ended March 31, 1999 (Commission File Number 1-14076), filed with
the Commission on May 20, 1999.)
10.23 Agreement, dated July 1, 1999, between the Company and Seafish
Partners. (Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K (Date of Report: July 1, 1999)
(Commission File Number: 1-14076), filed with the Commission on
July 15, 1999.)
10.24 Employment Agreement, dated July 14, 1999, between Vizacom Inc.
and Mark E. Leininger. (Incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K (Date of Report: July 1,
1999) (Commission File Number: 1-14076), filed with the Commission
on July 15, 1999.)
10.25 Agreement and Plan of Merger, dated as of February 15, 2000, among
Vizacom Inc., RCAC Acquisition Corp., Renaissance Computer Art
Center, Inc. and the former stockholders of Renaissance
Computer Art Center, Inc. (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K (Date of Report:
February 15, 2000) (Commission File Number: 1-14076), filed with the
Commission on February 22, 2000.)
10.26 Escrow Agreement, dated as of February 15, 2000, among Vizacom Inc.,
Renaissance Computer Art Center Inc., the former stockholders of
Renaissance Computer Art Center, Inc., Andrew Edwards and Kaufman
& Moomjian, LLC, as escrow agent. (Incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K (Date of
Report: February 15, 2000) (Commission File Number: 1-14076),
filed with the Commission on February 22, 2000.)
10.27 Form of Lock-Up Agreement. (Incorporated by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K (Date of Report:
February 15, 2000) (Commission File Number: 1-14076), filed with
the Commission on February 22, 2000.)
10.28 Registration Rights Agreement, dated as of February 15, 2000, among
Vizacom Inc., and each of the former stockholders of Renaissance
Computer Art Center, Inc. (Incorporated by reference to Exhibit
10.4 to the Company's Current Report on Form 8-K (Date of Report:
February 15, 2000) (Commission File Number: 1-14076), filed with
the Commission on February 22, 2000.)
10.29 Employment Agreement, dated as of February 15, 2000, by and between
Vizacom Inc. and Andrew Edwards. (Incorporated by reference to
Exhibit 10.5 to the Company's Current Report on Form 8-K (Date of
Report: February 15, 2000) (Commission File Number: 1-14076), filed
with the Commission on February 22, 2000.)
10.30 Line of Credit Facility Agreement, dated January 8, 2000, between
Vizacom Inc. and Churchill Consulting. (Incorporated by reference
to Exhibit 10.6 to the Company's Current Report on Form 8-K (Date of
Report: February 15, 2000) (Commission File Number: 1-14076), filed
with the Commission on February 22, 2000.)
10.31 Letter Agreement, dated March 15, 2000, by and between Vizacom Inc.
and Churchill Consulting. (Incorporated by reference to Exhibit
10.7 to the Company's Current Report on Form 8-K (Date of Report:
March 9, 2000) (Commission File Number: 1-14076), filed with
the Commission on March 21, 2000.)
10.32 Line of Credit Note, dated January 8, 2000, in the principal amount
of $1,000,000 and payable to Churchill Consulting. (Incorporated
by reference to Exhibit 10.7 to the Company's Current Report on Form
8-K (Date of Report: February 15, 2000) (Commission File Number:
1-14076), filed with the Commission on February 22, 2000.)
10.33 Warrant Certificate, dated February 17, 2000, registered in the name
of Churchill Consulting. (Incorporated by reference to Exhibit 10.8 to
the Company's Current Report on Form 8-K (Date of Report: February
15, 2000) (Commission File Number: 1-14076), filed with the
Commission on February 22, 2000.)
-137-
<PAGE>
VIZACOM INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.34 Stock Acquisition Agreement, dated March 9, 2000, among Vizacom Inc.
and the former stockholders of Junction 15 Limited.
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K (Date of Report: March 9, 2000) (Commission
File Number: 1-14076), filed with the Commission on March 21,
2000.)
10.35 Form of Lock-Up Agreement for use by directors of Junction 15 Limited
at the time of the acquisition. (Incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K (Date of
Report: March 9, 2000) (Commission File Number: 1-14076), filed
with the Commission on March 21, 2000.)
10.36 Form of Lock-Up Agreement for use by non-directors of Junction
15 Limited at the time of the acquisition. (Incorporated by
reference to Exhibit 10.3 to the Company's Current Report on Form
8-K (Date of Report: March 9, 2000) (Commission File Number: 1-14076),
filed with the Commission on March 21, 2000.)
10.37 Registration Rights Agreement, dated as of March 9, 2000, among
Vizacom Inc., and each of the former shareholders of Junction 15
Limited. (Incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K (Date of Report: March 9, 2000)
(Commission File Number: 1-14076), filed with the Commission
on March 21, 2000.)
10.38 Agreement and Plan of Merger, dated as of February 28, 2000, among
Vizacom Inc., PWR Acquisition Corp., PC Workstation Rentals, Inc.,
d/b/a PWR Systems and the stockholders of PC Workstation Rentals, Inc.
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K (Date of Report: March 27, 2000) (Commission File
Number: 1-14076), filed with the Commission on April 2, 2000.)
10.39 Amendment No. 1 to Merger Agreement, dated March 27, 2000,
among Vizacom Inc., PWR Acquisition Corp., PC Workstation Rentals,
Inc., d/b/a PWR Systems and the shareholders of PC Workstation
Rentals, Inc. (Incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K (Date of Report: March 27, 2000)
(Commission File Number: 1-14076), filed with the Commission on
April 2, 2000.)
10.40 Letter Agreement, dated March 27, 2000 among Vizacom Inc., PWR
Acquisition Corp., PC Workstation Rentals, Inc., d/b/a PWR Systems and
the stockholders of PC Workstation Rentals, Inc. (Incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
(Date of Report: March 27, 2000) (Commission File Number: 1-14076),
filed with the Commission on April 2, 2000.)
10.41 Convertible Note, dated March 27, 2000, of Vizacom Inc. in the
principal amount of $250,000 and payable to Vincent DiSpigno.
(Incorporated by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K (Date of Report: March 27, 2000) (Commission
File Number: 1-14076), filed with the Commission on April 2, 2000.)
10.42 Convertible Note, dated March 27, 2000, of Vizacom Inc. in the
principal amount of $250,000 and payable to David Salav.
(Incorporated by reference to Exhibit 10.4 to the Company's Current
Report on Form 8-K (Date of Report: March 27, 2000) (Commission File
Number: 1-14076), filed with the Commission on April 2, 2000.)
10.43 Lock-Up Agreement, dated March 27, 2000, between Vizacom Inc. and
Vincent DiSpigno. (Incorporated by reference to Exhibit
10.5 to the Company's Current Report on Form 8-K (Date of Report:
March 27, 2000) (Commission File Number: 1-14076), filed with the
Commission on April 2, 2000.)
10.44 Lock-Up Agreement, dated March 27, 2000, between Vizacom Inc. and
David Salav. (Incorporated by reference to Exhibit 10.6 to the
Company's Current Report on Form 8-K (Date of Report: March 27,
2000) (Commission File Number: 1-14076), filed with the Commission
on April 2, 2000.)
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<PAGE>
VIZACOM INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.45 Registration Rights Agreement, dated March 27, 2000, among Vizacom
Inc., Vincent DiSpigno and David Salav. (Incorporated by
reference to Exhibit 10.7 to the Company's Current Report on Form
8-K (Date of Report: March 27, 2000) (Commission File Number:
1-14076), filed with the Commission on April 2, 2000.)
10.46 Employment Agreement, dated March 27, 2000, between Vizacom Inc.
and Vincent DiSpigno. (Incorporated by reference to Exhibit 10.8 to
the Company's Current Report on Form 8-K (Date of Report: March 27,
2000) (Commission File Number: 1-14076), filed with the Commission
on April 2, 2000.)
10.47 Employment Agreement, dated March 27, 2000, between Vizacom Inc.
and David Salav. (Incorporated by reference to Exhibit 10.9 to the
Company's Current Report on Form 8-K (Date of Report: March 27,
2000) (Commission File Number: 1-14076), filed with the Commission
on April 2, 2000.)
10.48 Form of Promissory Note, dated March 27, 2000, of PC Workstation
Rentals, Inc. in the aggregate principal amount of $888,638 and
payable to Vincent DiSpigno and David Salav. (Incorporated by
reference to Exhibit 10.10 to the Company's Current Report on
Form 8-K (Date of Report: March 27, 2000) (Commission File Number:
1-14076), filed with the Commission on April 2, 2000.)
10.49 Consulting Agreement, dated as of January 28, 2000, between Vizacom
Inc., Arel AMG, Inc., and Charles S. Lazar.
10.50 Warrant Certificate, with respect to 100,000 shares of our common
stock, registered in the name of Arel AMG, Inc.
10.51 Warrant Certificate, with respect to 40,000 shares of our common
stock, registered in the name of Arel AMG, Inc.
10.52 Warrant Certificate, with respect to 70,000 shares of our common
stock, registered in the name of Arel AMG, Inc.
10.53 Warrant Certificate, with respect to 90,000 shares of our common
stock, registered in the name of Arel AMG, Inc.
10.54 Warrant Certificate, with respect to 50,000 shares of our
common stock, registered in the name of Arel AMG, Inc.
10.55 Warrant Certificate, with respect to 150,000 shares of our
common stock, registered in the name of Arel AMG, Inc.
10.56 Warrant Certificate, with respect to 150,000 shares of our common
stock, registered in the name of Arel AMG, Inc.
10.57 Distribution and Marketing Agreement, dated July 27, 1999, between
Nova Development Corporation and all Serif subsidiaries of
Vizacom Inc.
21 Subsidiaries of the Company.
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Ernst & Young.
23.3 Consent of Silver & Levene.
24 Powers of Attorney (set forth on the signature page of this Annual
Report on Form 10-KSB).
27 Financial Data Schedule.
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CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement"), is made and entered into
as of the 8th day of January, 2000, between Vizacom Inc., a Delaware corporation
(the "Company"), Arel AMG, Inc., a Delaware corporation (the "Consultant") and
Schlomo Lazar ("Mr. Lazar").
In consideration of and for the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
WHEREAS, Mr. Lazar, a principal of the Consultant, has demonstrated an
ability to provide to the Company certain valuable strategic and other
consulting services; and
WHEREAS, the Company and the Consultant wish that the Consultant
provide such services to the Company over a fixed term and for the Company to
compensate the Consultant therefor;
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants hereinafter set forth, and for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Term. Subject to earlier termination on the terms and conditions
hereinafter provided, and further subject to certain provisions hereof which
survive the term hereof and to Section 6 below, the term of this Agreement shall
be comprised of a three (3) year period commencing as of the date hereof (the
"Term").
2. Duties of Consultant. During the term of this Agreement, the
Consultant shall cause Mr. Lazar to provide, and Mr. Lazar shall provide, the
Company with such consulting advice as the Company may reasonably request
regarding strategic positioning, capital structure, financings, mergers and
acquisitions, marketing, operational matters, and such other matters as the
Company may determine. In performance of these duties, the Consultant and Mr.
Lazar shall provide the Company with the benefits of their best judgment and
efforts.
3. No Limitation to Consultant's Outside Activities. The Company
acknowledges that the Consultant and/or its affiliates and Mr. Lazar are in the
business of providing services and consulting advise (of all types contemplated
by this Agreement) to others. Nothing herein contained shall be construed to
limit or restrict the Consultant or Mr. Lazar from conducting such business with
respect to others, or in rendering such advise to others for so long as such
advisory services do not in any way conflict with activities, business or best
interests of the Company.
4. Indemnification. Neither the Consultant or Mr. Lazar shall be
subject to liability to the Company or to any officer, director, employee,
shareholder or creditor of the Company, for any act or omission in the course of
or connected with the rendering or providing
<PAGE>
advice hereunder other than for its gross negligence or wilful misconduct.
The Company agrees to defend, indemnify and hold harmless the Consultant and Mr.
Lazar from and against any and all costs, expenses and liability (including
attorney's fees paid in the defense of the Consultant and/or Mr. Lazar) which
may in any way result from services rendered by the Consultant pursuant to or in
any connection with this Agreement other than any such liabilities resulting
from the Consultant's and/or Mr. Lazar's gross negligence or wilful misconduct.
5. Expenses. The Company shall reimburse the Consultant and Mr. Lazar,
for any and all reasonable out-of-pocket expenses incurred by such party,
including hotel, food and associated expenses, all charges for travel and other
expenses spent directly on the Company's behalf; provided, that the Company's
prior written consent shall be required for expenses in excess of $500.00.
6. Consideration. In consideration for the services to be rendered to
the Company by the Consultant, the Company hereby agrees to grant the Consultant
as a consulting fee, the following warrants to purchase up to an aggregate of
650,000 shares of the Company's common stock, par value $.001 per share (the
"Common Stock"), for a three-year period, each at an exercise price of $3.00 per
share:
(a) A warrant to purchase 100,000 shares of Common Stock
immediately exercisable as of the date hereof (the "Initial Warrant");
(b) A warrant to purchase 70,000 shares of Common Stock which is
exercisable upon the closing of an acquisition by the Company or an affiliate
thereof, of a target company based in Europe that was introduced to the Company
by Mr. Lazar (the "First Acquisition Warrant");
(c) A warrant to purchase 90,000 shares of which are exercisable
upon the closing of an additional acquisition by the Company or an affiliate
thereof, of a target company based in Europe that was introduced to the Company
by Mr. Lazar (the "Second Acquisition Warrant");
(d) A warrant to purchase 40,000 shares of which are exercisable
upon the closing of a further additional acquisition by the Company or an
affiliate thereof, of a target company based in Europe that was introduced to
the Company by Mr. Lazar (the "Third Acquisition Warrant");
(e) A warrant to purchase 50,000 shares of Common Stock
exercisable upon the closing of a private placement by the Company of its Common
Stock whereby the Company raises at least $1 million from investors introduced
to the Company by Mr. Lazar (the "1M Private Placement Warrant");
(f) A warrant to purchase 150,000 shares of Common Stock
exercisable upon the closing of a private placement by the Company of its Common
Stock whereby the Company
2
<PAGE>
raises at least $20 million and at least a majority of such capital is
raised by investors introduced to the Company by Mr. Lazar (the "Lazar
Investors"), in proportion to the percentage of such funds are provided by the
Lazar Investors (the "20 m Private Placement Warrant"); and
(g) Subject to clause (h) below, a warrant to purchase 150,000 shares
of the Common Stock , which is exercisable immediately (the "Escrow Warrant").
(h) The Escrow Warrant granted by the Company to the Consultant
hereunder shall be held in excrow by Kaufman & Moomjian, LLC, or any successor
firm, pursuant to the escrow agreement, the form of which is attached hereto as
Exhibit A, which shall provide that the Escrow Warrant shall be released from
Escrow to Mr. Lazar upon the receipt by the escrow agent thereunder of written
instructions from both the Company and either the Consultant or Mr. Lazar to
release such warrants.
7. Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is deemed unlawful or invalid for any
reason whatsoever, such unlawfulness or invalidity shall not affect the validity
of the remainder of this Agreement.
8. Notices. Any notice hereunder shall be in writing and shall be effective
when delivered in person, by nationally recognized overnight courier service, by
facsimile transmission electronically confirmed during normal business hours, or
mailed by certified mail, postage prepaid, return receipt requested, to the
appropriate party or parties, at the following addresses: if to the consultant,
to Arel AMG, Inc., to 531 Edward Avenue, Woodmere, New York 11598; if to the
Company, to Vizacom Inc., Glenpointe Center East, 300 Frank W. Burr Boulevard,
Box 18, 7th Floor, Teaneck, NJ 07666, Attn: Mark E. Leininger (Fax No. (201)
928-1003); with a copy to Kaufman & Moomjian, LLC, 50 Charles Lindbergh
Boulevard, Mitchel Field, New York 11553, Attn: Neil M. Kaufman, Esq. (Fax No.
(516) 222-5110); if to Mr. Lazar, to 531 Edward Avenue, Woodmere, New York
11598, (Fax No. ) or, in each case, to such other address as the parties may
hereinafter designate by like notice.
9. Parties. This Agreement will inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns. This Agreement
is intended to be, and is for the sole and exclusive benefit of the parties
hereto, and their respective successors and assigns, and for the benefit of no
other person, and no other person will have any legal or equitable right, remedy
or claim under, or in respect of this Agreement. This Agreement and the rights,
duties, payments or obligations hereunder may not be assigned by either party
(except by operation of law) and shall be binding upon and inure to the benefit
of the parties and their respective successors, assigns and legal
representatives.
10. Amendment and/or Modification. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by each of the parties hereto.
3
<PAGE>
11. Further Assurances. Each party to this Agreement will perform any and
all acts and execute any and all documents as may be necessary and proper under
the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
12. Validity. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any of the other
terms of this Agreement will not in any way be affected thereby.
13. Waiver of Breach. The failure of any party hereto to insist upon strict
performance of any of the covenants and agreements herein contained, or to
exercise any option or right herein conferred in any one or more instances, will
not be construed to be a waiver or relinquishment of any such option or right,
or of any other covenants or agreements, and the same will be and remain in full
force and effect.
14. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof, and
there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied in this Agreement. Any and all prior discussions,
negotiations, commitments and understanding relating to the subject matter of
these agreements are hereby superseded.
15. Counterparts. This Agreement may be executed in counterparts and each
of such counterparts will for all purposes be deemed to be an original, and such
counterparts will together constitute one and the same instrument.
16. Law. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of New York, without regard to conflicts
of laws.
17. Representations, Warranties and Covenants to Survive Delivery. The
respective representations, indemnities, agreements, covenants, warranties and
other statements of the Company and the Consultant set forth herein shall
survive execution of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this agreement as of the date first above written.
VIZACOM INC.
By: /s/ Mark E. Leininger
Mark E. Leininger
President and Chief Executive Officer
/s/ Schlomo Lazar
Schlomo Lazar
AREL AMG, INC.
By: /s/ Schlomo Lazar
Name: Schlomo Lazar
Title: President
5
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES
OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
VOID AFTER 5:00 P.M. ON JANUARY 7, 2003
VIZACOM INC.
WARRANT CERTIFICATE
100,000 COMMON STOCK PURCHASE WARRANTS
Teaneck, New Jersey
Warrant Certificate No. AA-1 January 8, 2000
THIS IS TO CERTIFY THAT, for value received, Arel AMG, Inc., a Delaware
corporation or registered assigns (the "Warrantholder") permitted by the terms
of this Warrant Certificate, is the registered owner of the number of Common
Stock Purchase Warrants (each, a "Warrant") set forth above, each Warrant
entitling the owner thereof to purchase from Vizacom Inc., a Delaware
Corporation (the "Company"), at any time on or prior to 5:00 P.M., New York City
time, on January 7, 2003 (the "Expiration Time"), one duly authorized, validly
issued, fully paid and nonassessable share (each, a "Warrant Share") of the
common stock, par value $.001 per share ("Common Stock"), of the Company, at a
purchase price of $3.00 per share (the "Purchase Price"), all subject to the
terms and conditions contained herein. The number of Warrants evidenced by this
Warrant Certificate (and the number and kind of securities which may be
purchased upon exercise hereof) set forth above, and the Purchase Price per
share set forth above, are as of the date hereof. As provided herein, the
Purchase Price and the number of shares of Common Stock or other securities
which may be purchased upon the exercise of the Warrants evidenced by this
Warrant Certificate are, upon the happening of certain events, subject to
modification and adjustment.
This Warrant Certificate, together with any warrant certificate(s)
issued in replacement or substitution hereof (as provided for herein) evidencing
all or part of the Warrants evidenced hereby, are sometimes collectively
referred to herein as the "Warrant Certificates."
<PAGE>
The rights of the registered holder of this Warrant Certificate shall
be subject to the following further terms and conditions:
1. EXERCISE OF WARRANTS.
(a) The Warrants may be exercised, in whole or in part, on or prior
to the Expiration Time by surrendering this Warrant Certificate, with the
purchase form provided for herein duly executed by the Warrantholder or by the
Warrantholder's duly authorized attorney-in-fact, at the principal office of
the Company, presently located at Glenpointe Centre East, 300 Frank W. Burr
Boulevard - 7th Floor, Teaneck, New Jersey 07666, or at such other office or
agency in the United States as the Company may designate by notice in
writing to the Warrantholder (in either event, the "Company Offices"),
accompanied by payment in full, either in the form of cash, bank cashier's check
or certified check payable to the order of the Company, of the Exercise Price
payable in respect of the Warrants being exercised. If fewer than all of the
Warrants are exercised, the Company shall, upon each exercise prior to the
Expiration Time, execute and deliver to the Warrantholder a new Warrant
Certificate (dated as of the date hereof) evidencing the balance of the
Warrants that remain exercisable.
(b) On the date of exercise of the Warrants, the Warrantholder
exercising same shall be deemed to have become the holder of record for all
purposes of the Warrant Shares to which the exercise relates.
(c) As soon as practicable, but not in excess of ten days, after the
exercise of all or part of the Warrants evidenced by this Warrant Certificate,
the Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the
Warrantholder a certificate or certificates evidencing the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares to which
the Warrantholder shall be entitled upon such exercise.
(d) No certificates for fractional Warrant Shares shall be issued upon
the exercise of any of the Warrants but, in lieu thereof, the Company shall,
upon exercise of all the Warrants, round up any fractional Warrant Share to the
nearest whole share of Common Stock.
2. ISSUANCE OF COMMON STOCK; RESERVATION OF SHARES.
(a) The Company covenants and agrees that all Warrant Shares which may
be issued upon the exercise of all or part of the Warrants will, upon issuance
in accordance with the terms hereof, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
(b) The Company further covenants and agrees that if any shares of
Common Stock to be reserved for the purpose of the issuance of Warrant Shares
upon the exercise of Warrants require registration with, or approval of, any
governmental authority under any federal or state law before such shares may
be validly issued or delivered upon exercise, then the Company will promptly
use its best efforts to effect such registration or obtain such approval, as the
case may be.
-2-
<PAGE>
3. ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND CHARACTER OF WARRANT SHARES, AND
NUMBER OF WARRANTS.
The Exercise Price the number and kind of securities purchasable upon
the exercise of each Warrant shall be subject to adjustment from time to time
upon the happening of the events enumerated in this Section 3.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case the
Company shall at any time on or before the Expiration Time:
(i) pay a dividend in shares of Common Stock [or other stock
of the Company] or make a distribution in shares of Common Stock or such
other stock to holders of all its outstanding shares of Common Stock;
(ii) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares;
(iii) combine the outstanding shares of Common Stock into a
smaller number of shares of Common Stock; or
(iv) issue by reclassification of its shares of Common Stock
other securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing corporation);
then the number and kind of Warrant Shares purchasable upon exercise of
each Warrant outstanding immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of shares of
Common Stock or other securities of the Company which the Warrantholder would
have owned or have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised in full immediately prior
to the earlier of the happening of such event or any record date in respect
thereto. In the event of any adjustment of the number of Warrant Shares
purchasable upon the exercise of each then outstanding Warrants pursuant to this
Paragraph 3(a), the Exercise Price shall be adjusted to be the amount resulting
from dividing the number of shares of Common Stock (including fractional shares
of Common Stock) covered by such Warrant immediately after such adjustment into
the total amount payable upon exercise of such Warrant in full immediately prior
to such adjustment. An adjustment made pursuant to this Paragraph 3(a) shall
become effective immediately after the effective date of such event retroactive
to the record date for any such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) EXTRAORDINARY DIVIDENDS. In case the Company shall at any time
on or before the Expiration Time fix a record date for the issuance of rights,
options, or warrants to all holders of its outstanding shares of Common Stock,
entitling them (for a period expiring within 45 days after such record date) to
subscribe for or purchase shares of Common Stock (or securities exchangeable for
or convertible into shares of Common Stock) at a price per share of Common Stock
(or having an exchange or conversion price per share of Common Stock, with
respect to a security exchangeable
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<PAGE>
for or convertible into shares of Common Stock) which is lower than the
current Market Price per share of Common Stock (as defined in Paragraph 3(d)
below) on such record date, then the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, of which (i) the numerator shall be the number of shares of
Common Stock outstanding on such record date plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock so to be offered (or the aggregate initial exchange or conversion price of
the exchangeable or convertible securities so to be offered) would purchase at
such current Market Price and (ii) the denominator shall be the number of shares
of Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the exchangeable or convertible securities so to be offered are initially
exchangeable or convertible). Such adjustment shall become effective at the
close of business on such record date; however, to the extent that shares of
Common Stock (or securities exchangeable for or convertible into shares of
Common Stock) are not delivered after the expiration of such rights, options, or
warrants, the Exercise Price shall be readjusted (but only with respect to
Warrants exercised after such expiration) to the Exercise Price which would then
be in effect had the adjustments made upon the issuance of such rights, options,
or warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or securities exchangeable for or convertible into shares of
Common Stock) actually issued. In case any subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company and shall be described in a statement mailed to the
Warrantholder. Shares of Common Stock owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such computation.
(c) EXTRAORDINARY DISTRIBUTIONS. In case the Company shall at any time
after the original date of issuance of the Warrants (the "Date of Issuance")
distribute to all holders of its shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) evidences of its indebtedness or assets
(excluding cash dividends and distributions payable out of consolidated net
income or earned surplus in accordance with Delaware law and dividends or
distributions payable in shares of stock described in Paragraph 3(a) above) or
rights, options, or warrants or exchangeable or convertible securities
containing the right to subscribe for or purchase shares of Common Stock (or
securities exchangeable for or convertible into shares of Common Stock), then
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for such distribution by a fraction, of
which (i) the numerator shall be the current Market Price per share of Common
Stock (as defined in Paragraph 3(d)) on such record date, less the fair market
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive, and described in a notice to the
Warrantholders) of the portion of the evidences of indebtedness or assets so to
be distributed or of such rights, options or warrants applicable to one share of
Common Stock and (ii) the denominator shall be such current Market Price per
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of distribution
retroactive to the record date for such transaction.
(d) CURRENT MARKET PRICE DEFINED. For the purpose of any computation
under Paragraphs 3(b) and/or 3(c), the current Market Price per share of Common
Stock at any date shall
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<PAGE>
be deemed to be the average daily Closing Price of the shares of Common
Stock for twenty consecutive trading days ending within fifteen days before the
date in question. The term "Closing Price" of the shares of Common Stock for a
day or days shall mean (i) if the shares of Common Stock are listed or admitted
for trading on a national securities exchange, the last reported sales price
regular way, or, in case no such reported sale takes place on such day or days,
the average of the reported closing bid and asked prices regular way, in either
case on the principal national securities exchange on which the shares of the
Common Stock are listed or admitted for trading, or (ii) if the shares of Common
Stock are not listed or admitted for trading on a national securities exchange,
(A) the last transaction price for the Common Stock on The Nasdaq Stock Market
("Nasdaq") or, in the case no such reported transaction takes place on such day
or days, the average of the reported closing bid and asked prices thereof quoted
on Nasdaq, or (B) if the shares of Common Stock are not quoted on Nasdaq, the
average of the closing bid and asked prices of the Common Stock as quoted on the
Over-The-Counter Bulletin Board maintained by the National Association of
Securities Dealers, Inc. (the "Bulletin Board"), or (C) if the shares of Common
Stock are not quoted on Nasdaq nor on the Bulletin Board, the average of the
closing bid and asked prices of the common stock in the over-the-counter market,
as reported by The National Quotation Bureau, Inc., or an equivalent generally
accepted reporting service, or (iii) if on any such trading day or days the
shares of Common Stock are not quoted by any such organization, the fair market
value of the shares of Common Stock on such day or days, as determined in good
faith by the Board of Directors of the Company, shall be used.
(e) MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than five cents ($.05) per
share. Any adjustment of less than five cents ($.05) per share of any Exercise
Price shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, together with adjustment or adjustments so
carried forward, amounts to five cents ($.05) per share or more. However, upon
exercise of this Warrant Certificate, the Company shall make all necessary
adjustments (to the nearest cent) not theretofore made to the Exercise Price up
to and including the effective date upon which this Warrant Certificate is
exercised.
(f) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price shall be
adjusted pursuant to this Section 3, the Company shall promptly deliver a
certificate signed by the President, a Vice President, the Chief Financial
Officer, Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company made any determination hereunder),
by first class mail postage prepaid to each Warrantholder.
(g) CAPITAL REORGANIZATIONS AND OTHER RECLASSIFICATIONS. In case of
any capital reorganization of the Company, or of any reclassification of the
shares of Common Stock (other than a reclassification, subdivision or
combination of shares of Common Stock referred to in Paragraph 3(a)), or in
case of the consolidation of the Company with, or the merger of the Company
with, or merger of the Company into, any other corporation (other than a
reclassification of the shares of Common Stock referred to in Paragraph 3(a)
or a consolidation or merger which does not result in
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any reclassification or change of the outstanding shares of Common Stock)
or of the sale of the properties and assets of the Company as, or substantially
as, an entirety to any other corporation or entity, each Warrant shall, after
such capital reorganization, reclassification of shares of Common Stock,
consolidation, merger, or sale, be exercisable, upon the terms and conditions
specified in this Warrant Certificate, for the kind, amount and number of shares
or other securities, assets, or cash to which a holder of the number of shares
of Common Stock purchasable (at the time of such capital reorganization,
reclassification of shares of Common Stock, consolidation, merger or sale) upon
exercise of such Warrant would have been entitled to receive upon such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale; and in any such case, if necessary, the provisions set forth in
this Section 3 with respect to the rights and interests thereafter of the
Warrantholder shall be appropriately adjusted so as to be applicable, as nearly
equivalent as possible, to any shares or other securities, assets, or cash
thereafter deliverable on the exercise of the Warrants. The Company shall not
effect any such consolidation, merger, or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation or entity
(if other than the Company) resulting from such consolidation or merger or the
corporation or entity purchasing such assets or other appropriate corporation or
entity shall assume, by written instrument, the obligation to deliver to the
Warrantholder such shares, securities, assets, or cash as, in accordance with
the foregoing provisions, such holders may be entitled to purchase and the other
obligations hereunder. The subdivision or combination of shares of Common Stock
at any time outstanding into a greater or lesser number of shares shall not be
deemed to be a reclassification of the shares of Common Stock for purposes of
this Paragraph 3(e).
(h) ADJUSTMENTS TO OTHER SECURITIES. In the event that at any time,
as a result of an adjustment made pursuant to this Section 3, the Warrantholder
shall become entitled to purchase any shares or securities of the Company other
than the shares of Common Stock, thereafter the number of such other shares or
securities so purchasable upon exercise of each Warrant and the exercise price
for such shares or securities shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as possible to the provisions with
respect to the shares of Common Stock contained in Paragraphs 3(a) through (e),
inclusive.
(i) DEFERRAL OF ISSUANCE OF ADDITIONAL SHARES IN CERTAIN
CIRCUMSTANCES. In any case in which this Section 3 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the Warrantholder exercised after such record date the shares
of Common Stock, if any, issuable upon such exercise over and above the
Warrant Shares, if any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment; provided, however, that the
Company shall deliver as soon as practicable to such holder a due bill or other
appropriate instrument provided by the Company evidencing such holder's right
to receive such additional shares of Common Stock upon the occurrence of the
event requiring such adjustment.
4. DEFINITION OF COMMON STOCK.
The Common Stock issuable upon exercise of the Warrants shall be the
Common Stock as constituted on the date hereof except as otherwise provided in
Section 3.
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5. REPLACEMENT OF SECURITIES.
If this Warrant Certificate shall be lost, stolen, mutilated or
destroyed, the Company shall, on such terms as to indemnity or otherwise as the
Company may in its discretion reasonably impose, issue a new certificate of like
tenor or date representing in the aggregate the right to subscribe for and
purchase the number of shares of Common Stock which may be subscribed for and
purchased hereunder. Any such new certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
6. REGISTRATION.
This Warrant Certificate, as well as all other warrant certificates
representing Warrants shall be numbered and shall be registered in a register
(the "Warrant Register") maintained at the Company Offices as they are issued.
The Warrant Register shall list the name, address and Social Security or other
Federal Identification Number, if any, of all Warrantholders. The Company shall
be entitled to treat the Warrantholder as set forth in the Warrant Register as
the owner in fact of the Warrants as set forth therein for all purposes and
shall not be bound to recognize any equitable or other claim to or interest in
such Warrants on the part of any other person, and shall not be liable for any
registration of transfer of Warrants that are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with such knowledge of such facts
that its participation therein amounts to bad faith.
7. TRANSFER.
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES
OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
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8. EXCHANGE OF WARRANT CERTIFICATES.
This Warrant Certificate may be exchanged for another certificate or
certificates entitling the Warrantholder thereof to purchase a like aggregate
number of Warrant Shares as this Warrant Certificate entitles such Warrantholder
to purchase. A Warrantholder desiring to so exchange this Warrant Certificate
shall make such request in writing delivered to the Company, and shall surrender
this Warrant Certificate therewith. Thereupon, the Company shall execute and
deliver to the person entitled thereto a new certificate or certificates, as the
case may be, as so requested.
9. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given when delivered in person, against written receipt
therefor, or two days after being sent, by registered or certified mail, postage
prepaid, return receipt requested, and, if to the Warrantholder, at such address
as is shown on the Warrant Register or as may otherwise may have been furnished
to the Company in writing in accordance with this Section 9 by the Warrantholder
and, if to the Company, at the Company Offices or such other address as the
Company shall give notice thereof to the Warrantholder in accordance with this
Section 9.
10. REGISTRATION RIGHTS.
(a) Defined Terms. As used in this Section 10, terms defined
elsewhere herein shall have their assigned meanings and each of the following
terms shall have the following meanings (such definitions to be applicable
to both the plural and singular of the terms defined):
(i) Registerable Securities. The term "Registerable
Securities" shall mean any of the Warrant Shares, including any shares of
Common Stock or other securities received in connection with any stock
split, stock divided, merger, reorganization, recapitalization,
reclassification or other distribution payable or issuable upon shares of
Common Stock. For the purposes of this Agreement, securities will cease to
be Registerable Securities when (A) a registration statement under the
Securities Act covering such Registerable Securities has been declared
effective and either (1) such Registerable Securities have been disposed of
pursuant to such effective registration statement or (2) (I) such
Registerable Securities remain covered by such effective Registration
Statement, (II) such Registerable Securities have been withdrawn from such
Registration Statement at the request or demand of the holder of such
Registerable Securities or (III) such registration statement has been
withdrawn at the request or demand of the holder of such Registerable
Securities, (B) such Registerable Securities are distributed to the public
pursuant to the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act, including, but not limited
to, Rules 144 and 144A promulgated under the Securities Act, or (C) such
Registerable Securities have been otherwise transferred and the Company, in
accordance with applicable law and regulations, has delivered new
certificates or other evidences of ownership for such securities which are
not subject to any stop transfer order or other restriction on transfer.
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(ii) Rightsholders. The term "Rightsholders" shall include
the Warrantholder, all successors and assigns of the Warrantholder, and all
transferees of Registerable Securities where such transfer affirmatively
includes the transfer and assignment of the rights of the transferor
Rightsholder under this Agreement with respect to the transferred
Registerable Securities; provided, however, the term "Rightsholders" shall
not include any person or entity who has sold, transferred or assigned all
of such person's or entity's Registerable Securities.
(iii) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Section 10 shall refer to this
Section 10 as a whole and not to any particular provision of this Section
10, and subsection, paragraph, clause, schedule and exhibit references are
to this Section 10 unless otherwise specified.
(b) Demand Registration.
(i) The Company hereby covenants and agrees to register
(the "Demand Registration"), under the Securities Act, all of the
Registerable Securities.
(ii) Number of Demand Registrations; Expenses. The holders
of Registerable Securities shall be entitled, in the aggregate, to one
Demand Registration, the Registration Expenses (as defined in Paragraph
10(e) hereof) of which, subject to the provisions of Paragraph 10(e), shall
be borne by the Company, but the Company shall not be responsible for the
payment of any underwriter's discount, commission or selling concession in
connection with any of the Registerable Securities. The Company shall not
be deemed to have effected a Demand Registration unless and until such
Demand Registration is declared effective.
(iii) Approval of Underwriter by the Company. If the Demand
Registration is to involve an underwritten offering, the managing
underwriter(s) and each selling agent selected by those Rightsholders
participating in each such underwritten offering shall be Subject to the
written approval of the Company, which approval may not be unreasonably
withheld.
(vi) "Initiating Holders" Defined. For purposes of this
Agreement, the term "Initiating Holders" shall mean, on any given date,
those Rightsholders holding Registerable Securities which would aggregate
50% or more of the total Registerable Securities that would be outstanding
on such date.
(c) Piggy-Back Registration.
(i) If, at any time on or after the date on which this
warrant certificate has been issued and on or prior to two years after the
Expiration Time, the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company or any
other party of any class of equity security similar to any Registerable
Securities (other than a registration statement on Form S-4 or S-8 or any
successor form or
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a registration statement filed solely in connection with an exchange offer,
a business combination transaction or an offering of securities solely to
the existing stockholders or employees of the Company), then the Company,
on each such occasion, shall give written notice (each, a "Company
Piggy-Back Notice") of such proposed filing to all of the Rightsholders
owning Registerable Securities at least 20 days before the anticipated
filing date of such registration statement, and such Company Piggy-Back
Notice also shall be required to offer to such Rightsholders the
opportunity to register such aggregate number of Registerable Securities as
each such Rightsholder may request. Each such Rightsholder shall have the
right, exercisable for the ten days immediately following the giving of the
Company Piggy-Back Notice, to request, by written notice (each, a "Holder
Notice") to the Company, the inclusion of all or any portion of the
Registerable Securities of such Rightsholders in such registration
statement. The Company shall use reasonable efforts to cause the managing
underwriter(s) of a proposed underwritten offering to permit the inclusion
of the Registerable Securities which were the subject of all Holder Notices
in such underwritten offering on the same terms and conditions as any
similar securities of the Company included therein. Notwithstanding
anything to the contrary contained in this Paragraph 10(c)(i), if the
managing underwriter(s) of such underwritten offering (or, in the case of
an offering not being underwritten, the Company) delivers a written opinion
(or, in the case of the Company, a resolution of its Board of Directors
certified by the President or Secretary of the Company) to the
Rightsholders of Registerable Securities which were the subject of all
Holder Notices that the total amount and kind of securities which they, the
Company and any other person Intend to include in such offering is such as
to materially and adversely affect the success of such offering, then the
amount of securities to be offered for the accounts of such Rightsholders
and persons other than the Company shall be eliminated or reduced pro rata
(based on the amount of securities owned by such Rightsholders and other
persons which carry registration rights) to the extent necessary to reduce
the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter(s) in its written opinion
(or the Board of Directors in its resolution).
(ii) Number of Piggy-Back Registrations; Expenses. The
obligations of the Company under this Paragraph 10(c) shall be unlimited
with respect to each Rightsholder. Subject to the provisions of Paragraph
10(e) hereof, the Company will pay all Registration Expenses in connection
with any registration of Registerable Securities effected pursuant to this
Paragraph 10(c), but the Company shall not be responsible for the payment
of any underwriter's discount, commission or selling concession in
connection therewith.
(iii) Withdrawal or Suspension of Registration Statement.
Notwithstanding anything contained to the contrary in this Paragraph 10(c),
the Company shall have the absolute right, whether before or after the
giving of a Company Piggy-Back Notice or Holder Notice, to determine not to
file a registration statement to which the Rightsholders shall have the
right to include their Registerable Securities therein pursuant to this
Paragraph 10(c), to withdraw such registration statement or to delay or
suspend pursuing the effectiveness of such registration statement. In the
event of such a determination after the giving of a Company Piggy-Back
Notice, the Company shall give notice of such determination to all
Rightsholders and, thereupon, (A) in the case of a
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determination not to register or to withdraw such registration statement,
the Company shall be relieved of its obligation under this Paragraph 10(c)
to register any of the Registerable Securities in connection with such
registration and (B) in the case of a determination to delay the
registration, the Company shall be permitted to delay or suspend the
registration of Registerable Securities pursuant to this Paragraph 10(c)
for the same period as the delay in the registration of such other
securities. No registration effected under this Paragraph 10(c) shall
relieve the Company of its obligation to effect any registration upon
demand otherwise granted to a Rightsholder under Paragraph 10(b)
hereof or any other agreement with the Company.
(d) Registration Procedures.
(i) Obligations of the Company. The Company will, in connection
with any registration pursuant to Paragraph 10(b) or (c) hereof, as
expeditiously as possible:
(A) prepare and file with the Commission a registration
statement under the Securities Act on any appropriate form chosen by
the Company, in its sole discretion, which shall be available for the
sale of all Registerable Securities in accordance with the intended
method(s) of distribution thereof set forth in all applicable Demand
Requests, Tag-Along Requests and Holder Notices, and use its
commercially reasonable best efforts to cause such registration
statement to become effective as soon thereafter as reasonably
practicable; provided, that, at least five business days before filing
with the Commission of such registration statement, the Company shall
furnish to each Rightsholder whose Registerable Securities are
included therein draft copies of such registration statement,
including all exhibits thereto and documents incorporated by reference
therein, and, upon the reasonable request of any such Rightsholder,
shall continue to provide drafts of such registration statement until
filed, and, after such filing, the Company shall, as diligently as
practicable, provide to each such Rightsholders such number of copies
of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus), all exhibits thereto and documents
incorporated by reference therein and such other documents as such
Rightsholder may reasonably request in order to facilitate the
disposition of the Registerable Securities owned by such Rightsholder
and included in such registration statement; provided, further, the
Company shall modify or amend the registration statement as it relates
to such Rightsholder as reasonably requested by such Rightsholder on a
timely basis, and shall reasonably consider other changes to the
registration statement (but not including any exhibit or document
incorporated therein by reference) reasonably requested by such
Rightsholder on a timely basis, in light of the requirements of the
Securities Act and any other applicable laws and regulations; and
provided, further, that the obligation of the Company to effect such
registration and/or cause such registration statement to become
effective, may be postponed for (1) such period of time when the
financial statements of the Company required to be included in such
registration statement are not available (due solely to the fact that
such financial statements have not been prepared in the regular course
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of business of the Company) or (2) any other bona fide corporate
purpose, but then only for a period not to exceed 90 days;
(B) prepare and file with the Commission such
amendments and post-effective amendments to a registration statement
as may be necessary to keep such registration statement effective for
up to nine months; and cause the related prospectus to be supplemented
by any required prospectus supplement, and as so supplemented to be
filed to the extent required pursuant to Rule 424 promulgated under
the Securities Act, during such nine-month period; and otherwise
comply with the provisions of the Securities Act with respect to the
disposition of all Registerable Securities covered by such
registration statement during the applicable period in accordance with
the intended method(s) of disposition of such Registerable Securities
set forth in such registration statement, prospectus or supplement to
such prospectus;
(C) notify the Rightsholders whose Registerable
Securities are included in such registration statement and the
managing underwriter(s), if any, of an underwritten offering of any of
the Registerable Securities included in such registration statement,
and confirm such advice in writing, (1) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and,
with respect to a registration statement or any post-effective
amendment, when the same has become effective, (2) of any request by
the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (3) of
the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for that purpose, (4) if at any time the representations
and warranties of the Company contemplated by clause (1) of Paragraph
10(d)(i)(J) hereof cease to be true and correct, (5) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of any of the Registerable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event which makes any
statement made in the registration statement, the prospectus or any
document incorporated therein by reference untrue or which requires
the making of any changes in the registration statement or prospectus
so that such registration statement, prospectus or document
incorporated by reference will not contain any untrue statement of
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(D) make reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of such
registration statement at the earliest possible moment and to prevent
the entry of such an order;
(E) use reasonable efforts to register or qualify
the Registerable Securities included in such registration statement
under such other securities or blue sky laws of such jurisdictions as
any Rightsholder whose Registerable Securities are included in such
registration statement reasonably requests in writing and do any and
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all other acts and things which may be necessary or advisable to
enable such Rightsholder to consummate the disposition in such
jurisdictions of such Registerable Securities; provided, that the
Company will not be required to (1) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this Paragraph 10(d)(i)(E), (2) subject itself to
taxation in any such jurisdiction or (3) take any action which would
subject it to general service of process in any such jurisdiction;
(F) make available for inspection by each
Rightsholder whose Registerable Securities are included in such
registration, any underwriter(s) participating in any disposition
pursuant to such registration statement, and any representative, agent
or employee of or attorney or accountant retained by any such
Rightsholder or underwriter(s) (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility (or establish a due diligence defense), and cause the
officers, directors and employees of the Company to supply all
information reasonably requested by any such Inspector in connection
with such registration statement; provided, that records which the
Company determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors, unless (1) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction or
(2) the disclosure of such Records is required by any applicable law
or regulation or any governmental regulatory body with jurisdiction
over such Rightsholder or underwriter; provided, further, that such
Rightsholder or underwriter(s) agree that such Rightsholder or
underwriter(s) will, upon learning the disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(G) cooperate with the Rightsholder whose
Registerable Securities are included in such registration statement
and the managing underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Registerable
Securities to be sold thereunder, not bearing any restrictive legends,
and enable such Registerable Securities to be in such denominations
and registered in such names as such Rightsholder or any managing
underwriter(s) may reasonably request at least two business days prior
to any sale of Registerable Securities;
(H) comply with all applicable rules and
regulations of the Commission and promptly make generally available to
its security holders an earnings statement covering a period of twelve
months commencing, (1) in an underwritten offering, at the end of any
fiscal quarter in which Registerable Securities are sold to
underwriter(s), or (2) in a non-underwritten offering, with the first
month of the Company's first fiscal quarter beginning after the
effective date of
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such registration statement, which earnings statement in each
case shall satisfy the provisions of Section 11(a) of the Securities
Act;
(I) provide a CUSIP number for all Registerable
Securities not later than the effective date of the registration
statement relating to the first public offering of Registerable
Securities of the Company pursuant hereto;
(J) enter into such customary agreements
(including an underwriting agreement in customary form) and take all
such other actions reasonably requested by the Rightsholders holding a
majority of the Registerable Securities included in such registration
statement or the managing underwriter(s) in order to expedite and
facilitate the disposition of such Registerable Securities and in such
connection, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration,
(1) make such representations and warranties, if any, to the holders
of such Registerable Securities and any underwriter(s) with respect to
the registration statement, prospectus and documents incorporated by
reference, if any, in form, substance and scope as are customarily
made by issuers to underwriter(s) in underwritten offerings and
confirm the same if and when requested, (2) obtain opinions of counsel
to the Company and updates thereof addressed to each such Rightsholder
and the underwriter(s), if any, with respect to the registration
statement, prospectus and documents incorporated by reference, if any,
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Rightsholders and underwriter(s), (3) obtain a "cold
comfort" letter and updates thereof from the Company's independent
certified public accountants addressed to such Rightsholders and to
the underwriter(s), if any, which letters shall be in customary form
and cover matters of the type customarily covered in "cold comfort"
letters by accountants in connection with underwritten offerings, and
(4) deliver such documents and certificates as may be reasonably
requested by the Rightsholders holding a majority of such Registerable
Securities and managing underwriter(s), if any, to evidence compliance
with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; each such action
required by this Paragraph 10(d)(i)(J) shall be done at each closing
under such underwriting or similar agreement or as and to the extent
required thereunder; and
(K) if requested by the holders of a majority of
the Registerable Securities included in such registration statement,
use its best efforts to cause all Registerable Securities which are
included in such registration statement to be listed, subject to
notice of issuance, by the date of the first sale of such Registerable
Securities pursuant to such registration statement, on each securities
exchange, if any, on which securities similar to the Registered
Securities are listed.
(ii) Obligations of Rightsholders. In connection with any
registration of Registerable Securities of a Rightsholder pursuant to
Paragraph 10(b) or (c) hereof:
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(A) The Company may require that each Rightsholder
whose Registerable Securities are included in such registration
statement furnish to the Company such information regarding the
distribution of such Registerable Securities and such Rightsholder as
the Company may from time to time reasonably request in writing; and
(B) Each Rightsholder, upon receipt of any notice
from the Company of the happening of any event of the kind described
in clauses (2), (3), (5) and (6) of Paragraph 10(d)(i)(C) hereof,
shall forthwith discontinue disposition of Registerable Securities
pursuant to the registration statement covering such Registerable
Securities until such Rightsholder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (1) of
Paragraph 10(d)(i)(C) hereof, or until such Rightsholder is advised in
writing (the "Advice") by the Company that the use of the applicable
prospectus may be resumed, and until such Rightsholder has received
copies of any additional or supplemental filings which are
incorporated by reference in or to be attached to or included with
such prospectus, and, if so directed by the Company, such Rightsholder
will deliver to the Company (at the expense of the Company) all
copies, other than permanent file copies then in the possession of
such Rightsholder, of the current prospectus covering such
Registerable Securities at the time of receipt of such notice; the
Company shall have the right to demand that such Rightsholder or other
holder verify its agreement to the provisions of this Paragraph 10(d)
(ii)(B) in any Demand Request, Tag-Along Request or Holder Notice of
the Rightsholder or in a separate document executed by the
Rightsholder.
(e) Registration Expenses. All expenses incident to the performance
of or compliance with this Agreement by the Company, including, without
imitation, all registration and filing fees of the Commission, National
Association of Securities Dealers, Inc. and other agencies, fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registerable Securities), rating agency fees, printing expenses, messenger
and delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing, if any, of the Registerable Securities on any securities exchange and
fees and disbursements of counsel for the Company and the Company's
independent certified public accountants (including the expenses of any
special audit or "cold comfort" letters required by or incidental to such
performance), Securities Act or other liability insurance (if the Company
elects to obtain such insurance), the fees and expenses of any special experts
retained by the Company in connection with such registration and the fees and
expenses of any other person retained by the Company (but not including any
underwriting discounts or commissions attributable to the sale of
Registerable Securities or other out-of-pocket expenses of the Rightsholders,
or the agents who act on their behalf, unless reimbursement is specifically
approved by the Company) will be borne by the Company. All such expenses are
herein referred to as "Registration Expenses." Notwithstanding the foregoing,
the Company shall not be required to pay for any Registration Expenses of any
Demand Registration if such Demand Request is subsequently withdrawn at the
request of the holders of a majority of the
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Registerable Securities included in such Demand Registration (in which case
all Rightsholders which requested the withdrawal of the Demand Registration
shall bear such expenses pro rata); provided that, if, at the time of such
withdrawal, such Rightsholders have learned of a material adverse change in the
condition, business or prospects of the Company from that known to such
Rightsholders at the time of their Demand Request, such Rightsholders shall not
be required to pay any of such expenses. In either event, if such Rightsholders
pay in full the expenses of such withdrawn Demand Registration, such
Rightsholders shall retain the right to one Demand Registration.
(f) Indemnification: Contribution.
(i) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Rightsholder, its officers and directors and each person who controls such
Rightsholder (within the meaning of the Securities Act), if any, and any
agent thereof against all losses, claims, damages, liabilities and expenses
incurred by such party pursuant to any actual or threatened suit, action,
proceeding or investigation (including reasonable attorney's fees and
expenses of investigation) arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in
the light of the circumstances under which they were made) not misleading,
except insofar as the same arise out of or are based upon, any such untrue
statement or omission based upon information with respect to such
Rightsholder furnished in writing to the Company by such Rightsholder
expressly for use therein.
(ii) Indemnification by Rightsholder. In connection with
any registration statement in which a Rightsholder is participating, each
such Rightsholder will be required to furnish to the Company in writing
such information with respect to such Rightsholder as the Company
reasonably requests for use in connection with any such registration
statement or prospectus, and each Rightsholder agrees to the extent it is
such a holder of Registerable Securities included in such registration
statement, and each other such holder of Registerable Securities included
in such Registration Statement will be required to agree, to indemnify,
to the full extent permitted by law, the Company, the directors and
officers of the Company and each person who controls the Company (within
the meaning of the Securities Act) and any agent thereof, against any
losses, claims, damages, liabilities and expenses (including reasonable
attorney's fees and expenses of investigation incurred by such party
pursuant to any actual or threatened suit, action, proceeding or
investigation arising out of or based upon any untrue or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact necessary, to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they are made)
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is based upon information relating to such
Rightsholder or other holder furnished in writing to the Company expressly
for use therein.
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<PAGE>
(iii) Conduct of Indemnification Proceedings. Promptly
after receipt by an indemnified party under this Paragraph 10(f) of written
notice of the commencement of any action, proceeding, suit or investigation
or threat thereof made in writing for which such indemnified party may
claim indemnification or contribution pursuant to this Agreement, such
indemnified party shall notify in writing the indemnifying party of such
commencement or threat; but the omission so to notify the indemnifying
party shall not relieve the indemnifying party from any liability which the
indemnifying party may have to any indemnified party (A) hereunder, unless
the indemnifying party is actually prejudiced thereby, or (B) otherwise
than under this Paragraph 10(f). In case any such action, suit or
proceeding shall be brought against any indemnified party, and the
indemnified party shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein
and the indemnifying party shall assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party, and the obligation to pay
all expenses relating thereto. The indemnified party shall have the right
to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party has agreed to pay such fees and expenses, (B) the
indemnifying party shall have failed to assume the defense of such action,
suit or proceeding or to employ counsel reasonably satisfactory to the
indemnified party therein or to pay all expenses relating thereto or (C)
the named parties to any such action or proceeding (including any impleaded
parties) include both the indemnified party and the indemnifying party and
the indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to the indemnified party which are
different from or additional to those available to the indemnifying party
and which may result in a conflict between the indemnifying party and such
indemnified party (in which case, if the indemnified party notifies the
indemnifying party in writing that the indemnified party elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action or
proceeding on behalf of the indemnified party; it being understood,
however, that the indemnifying party shall not, in connection with any
one such action, suit or proceeding or separate but substantially similar
or related actions, suits or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys at any time
for the indemnified party, which firm shall be designated in writing by the
indemnified party).
(iv) Contribution. If the indemnification provided for in
this Paragraph 10(f) from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses (A) in such proportion as
is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other
or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the
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<PAGE>
relative fault of the indemnifying party and indemnified party, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and the indemnified parties shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified parties,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable
by a party as a result of the losses, claims, damages. liabilities and
expenses referred to above shall be deemed to include, subject to the
limitation set forth in Paragraph 10(f)(v), any legal or other fees or
expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Paragraph 10(f)(iv) were
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to in clauses (A) and (B) of the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(v) Limitation. Anything to the contrary contained in this
Paragraph 10(f) or in Paragraph 10(g) notwithstanding, no holder of
Registerable Securities shall be liable for indemnification and
contribution payments aggregating an amount in excess of the maximum amount
received by such holder in connection with any sale of Registerable
Securities as contemplated herein.
(g) Participation in Underwritten Registration. No Rightsholder may
participate in any underwritten registration hereunder unless such Rightsholder
(i) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange
Act and (ii) completes and executes all questionnaires, appropriate and limited
powers of attorney, escrow agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangement; provided, that all such documents shall be consistent with the
provisions of Paragraph 10(e) hereof.
11. MISCELLANEOUS.
This Warrant Certificate and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This certificate is deemed to have been delivered in the State of New
York and shall be construed and enforced in accordance with and governed by the
laws of such State. The headings in this Warrant Certificate are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
-18-
<PAGE>
12. EXPIRATION.
Unless as hereinafter provided, the right to exercise these
Warrants shall expire at the Expiration Time.
Dated: January 8, 2000
VIZACOM INC.
By: /s/ Mark E. Leininger
Mark E. Leininger, President
ATTEST:
/s/ Marc E. Jaffe
Marc E. Jaffe, Secretary
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<PAGE>
EXERCISE FORM
Dated: ,
---------------- ----
TO: VIZACOM INC.:
The undersigned hereby irrevocably elects to exercise the within
Warrant, to the extent of purchasing _________________ shares of Common Stock,
and hereby makes payment of ____________ in payment of the actual Exercise Price
thereof.
-------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
-------------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
-------------------------------------------------------------
Address:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
--------------------------
Signature:
-------------------------------------------------------------
(Signature must conform in all respects to the name of the
Warrantholder as set forth on the face of this Warrant
Certificate.)
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<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED,
---------------------------------------------
(Please type or print in block letters)
hereby sells, assigns and transfers unto:
Name:
----------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
----------------------------------------------------------
Address:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
this Warrant Certificate and the Warrants represented by this Warrant
Certificate to the extent of ________________ Warrants and does hereby
irrevocably constitute and appoint __________________________ Attorney-in-Fact,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Dated:
----------------------
Signature:
----------------------------------------------------------
(Signature must conform in all respects to the name of
the Warrantholder as set forth on the face of this
Warrant Certificate.)
-21-
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES OF
COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
VOID AFTER 5:00 P.M. ON JANUARY 7, 2003
VIZACOM INC.
WARRANT CERTIFICATE
70,000 COMMON STOCK PURCHASE WARRANTS
Teaneck, New Jersey
Warrant Certificate No. AA-2 January 8, 2000
THIS IS TO CERTIFY THAT, for value received, Arel AMG, Inc., a
Delaware corporation or registered assigns (the "Warrantholder") permitted by
the terms of this Warrant Certificate, is the registered owner of the number of
Common Stock Purchase Warrants (each, a "Warrant") set forth above, each Warrant
entitling the owner thereof to purchase from Vizacom Inc., a Delaware
Corporation (the "Company"), at any time commencing on or after the date on
which the Company or an affiliate of the Company consummates an acquisition of a
company located in Europe that was introduced to the Company by Schlomo Lazar or
the Warrantholder (the "Commencement Time") on or prior to 5:00 P.M., New York
City time, on January 7, 2003 (the "Expiration Time"), one duly authorized,
validly issued, fully paid and nonassessable share (each, a "Warrant Share") of
the common stock, par value $.001 per share ("Common Stock"), of the Company, at
a purchase price of $3.00 per share (the "Purchase Price"), all subject to the
terms and conditions contained herein. The number of Warrants evidenced by this
Warrant Certificate (and the number and kind of securities which may be
purchased upon exercise hereof) set forth above, and the Purchase Price per
share set forth above, are as of the date hereof. As provided herein, the
Purchase Price and the number of shares of Common Stock or other securities
which may be purchased upon the exercise of the Warrants evidenced by this
Warrant Certificate are, upon the happening of certain events, subject to
modification and adjustment.
<PAGE>
This Warrant Certificate, together with any warrant certificate(s)
issued in replacement or substitution hereof (as provided for herein) evidencing
all or part of the Warrants evidenced hereby, are sometimes collectively
referred to herein as the "Warrant Certificates."
The rights of the registered holder of this Warrant Certificate shall
be subject to the following further terms and conditions:
1. EXERCISE OF WARRANTS.
(a) The Warrants may be exercised, in whole or in part, on or prior
to the Expiration Time by surrendering this Warrant Certificate, with the
purchase form provided for herein duly executed by the Warrantholder or by the
Warrantholder's duly authorized attorney-in-fact, at the principal office of
the Company, presently located at Glenpointe Centre East, 300 Frank W. Burr
Boulevard - 7th Floor, Teaneck, New Jersey 07666, or at such other office or
agency in the United States as the Company may designate by notice in
writing to the Warrantholder (in either event, the "Company Offices"),
accompanied by payment in full, either in the form of cash, bank cashier's check
or certified check payable to the order of the Company, of the Exercise Price
payable in respect of the Warrants being exercised. If fewer than all of the
Warrants are exercised, the Company shall, upon each exercise prior to the
Expiration Time, execute and deliver to the Warrantholder a new Warrant
Certificate (dated as of the date hereof) evidencing the balance of the
Warrants that remain exercisable.
(b) On the date of exercise of the Warrants, the Warrantholder
exercising same shall be deemed to have become the holder of record for all
purposes of the Warrant Shares to which the exercise relates.
(c) As soon as practicable, but not in excess of ten days, after the
exercise of all or part of the Warrants evidenced by this Warrant Certificate,
the Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the
Warrantholder a certificate or certificates evidencing the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares to which
the Warrantholder shall be entitled upon such exercise.
(d) No certificates for fractional Warrant Shares shall be issued upon
the exercise of any of the Warrants but, in lieu thereof, the Company shall,
upon exercise of all the Warrants, round up any fractional Warrant Share to the
nearest whole share of Common Stock.
2. ISSUANCE OF COMMON STOCK; RESERVATION OF SHARES.
(a) The Company covenants and agrees that all Warrant Shares which may
be issued upon the exercise of all or part of the Warrants will, upon issuance
in accordance with the terms hereof, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
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<PAGE>
(b) The Company further covenants and agrees that if any shares of
Common Stock to be reserved for the purpose of the issuance of Warrant Shares
upon the exercise of Warrants require registration with, or approval of, any
governmental authority under any federal or state law before such shares may
be validly issued or delivered upon exercise, then the Company will promptly
use its best efforts to effect such registration or obtain such approval, as the
case may be.
3. ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND CHARACTER OF WARRANT SHARES, AND
NUMBER OF WARRANTS.
The Exercise Price the number and kind of securities purchasable upon
the exercise of each Warrant shall be subject to adjustment from time to time
upon the happening of the events enumerated in this Section 3.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case the
Company shall at any time on or before the Expiration Time:
(i) pay a dividend in shares of Common Stock [or other stock
of the Company] or make a distribution in shares of Common Stock or such
other stock to holders of all its outstanding shares of Common Stock;
(ii) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares;
(iii) combine the outstanding shares of Common Stock into a
smaller number of shares of Common Stock; or
(iv) issue by reclassification of its shares of Common Stock
other securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing corporation);
then the number and kind of Warrant Shares purchasable upon exercise of
each Warrant outstanding immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of shares of
Common Stock or other securities of the Company which the Warrantholder would
have owned or have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised in full immediately prior
to the earlier of the happening of such event or any record date in respect
thereto. In the event of any adjustment of the number of Warrant Shares
purchasable upon the exercise of each then outstanding Warrants pursuant to this
Paragraph 3(a), the Exercise Price shall be adjusted to be the amount resulting
from dividing the number of shares of Common Stock (including fractional shares
of Common Stock) covered by such Warrant immediately after such adjustment into
the total amount payable upon exercise of such Warrant in full immediately prior
to such adjustment. An adjustment made pursuant to this Paragraph 3(a) shall
become effective immediately after the effective date of such event retroactive
to the record date for any such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
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<PAGE>
(b) EXTRAORDINARY DIVIDENDS. In case the Company shall at any time on
or before the Expiration Time fix a record date for the issuance of rights,
options, or warrants to all holders of its outstanding shares of Common Stock,
entitling them (for a period expiring within 45 days after such record date) to
subscribe for or purchase shares of Common Stock (or securities exchangeable for
or convertible into shares of Common Stock) at a price per share of Common Stock
(or having an exchange or conversion price per share of Common Stock, with
respect to a security exchangeable for or convertible into shares of Common
Stock) which is lower than the current Market Price per share of Common Stock
(as defined in Paragraph 3(d) below) on such record date, then the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, of which (i) the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial exchange or
conversion price of the exchangeable or convertible securities so to be offered)
would purchase at such current Market Price and (ii) the denominator shall be
the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock to be offered for subscription or
purchase (or into which the exchangeable or convertible securities so to be
offered are initially exchangeable or convertible). Such adjustment shall become
effective at the close of business on such record date; however, to the extent
that shares of Common Stock (or securities exchangeable for or convertible into
shares of Common Stock) are not delivered after the expiration of such rights,
options, or warrants, the Exercise Price shall be readjusted (but only with
respect to Warrants exercised after such expiration) to the Exercise Price which
would then be in effect had the adjustments made upon the issuance of such
rights, options, or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities exchangeable for or convertible
into shares of Common Stock) actually issued. In case any subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company and shall be described in a statement
mailed to the Warrantholder. Shares of Common Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation.
(c) EXTRAORDINARY DISTRIBUTIONS. In case the Company shall at any time
after the original date of issuance of the Warrants (the "Date of Issuance")
distribute to all holders of its shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) evidences of its indebtedness or assets
(excluding cash dividends and distributions payable out of consolidated net
income or earned surplus in accordance with Delaware law and dividends or
distributions payable in shares of stock described in Paragraph 3(a) above) or
rights, options, or warrants or exchangeable or convertible securities
containing the right to subscribe for or purchase shares of Common Stock (or
securities exchangeable for or convertible into shares of Common Stock), then
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for such distribution by a fraction, of
which (i) the numerator shall be the current Market Price per share of Common
Stock (as defined in Paragraph 3(d)) on such record date, less the fair market
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive, and described in a notice to the
Warrantholders) of the portion of the evidences of indebtedness or assets so to
be distributed or of such rights, options or warrants applicable to one share of
Common Stock
-4-
<PAGE>
and (ii) the denominator shall be such current Market Price per share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution retroactive to the
record date for such transaction.
(d) CURRENT MARKET PRICE DEFINED. For the purpose of any computation
under Paragraphs 3(b) and/or 3(c), the current Market Price per share of Common
Stock at any date shall be deemed to be the average daily Closing Price of the
shares of Common Stock for twenty consecutive trading days ending within fifteen
days before the date in question. The term "Closing Price" of the shares of
Common Stock for a day or days shall mean (i) if the shares of Common Stock are
listed or admitted for trading on a national securities exchange, the last
reported sales price regular way, or, in case no such reported sale takes place
on such day or days, the average of the reported closing bid and asked prices
regular way, in either case on the principal national securities exchange on
which the shares of the Common Stock are listed or admitted for trading, or
(ii) if the shares of Common Stock are not listed or admitted for trading on
a national securities exchange, (A) the last transaction price for the Common
Stock on The Nasdaq Stock Market ("Nasdaq") or, in the case no such reported
transaction takes place on such day or days, the average of the reported
closing bid and asked prices thereof quoted on Nasdaq, or (B) if the shares of
Common Stock are not quoted on Nasdaq, the average of the closing bid and asked
prices of the Common Stock as quoted on the Over-The-Counter Bulletin Board
maintained by the National Association of Securities Dealers, Inc. ( the
"Bulletin Board"), or (C) if the shares of Common Stock are not quoted on
Nasdaq nor on the Bulletin Board, the average of the closing bid and asked
prices of the common stock in the over-the-counter market, as reported by The
National Quotation Bureau, Inc., or an equivalent generally accepted reporting
service, or (iii) if on any such trading day or days the shares of Common
Stock are not quoted by any such organization, the fair market value of the
shares of Common Stock on such day or days, as determined in good faith by
the Board of Directors of the Company, shall be used.
(e) MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than five cents ($.05) per
share. Any adjustment of less than five cents ($.05) per share of any Exercise
Price shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, together with adjustment or adjustments so
carried forward, amounts to five cents ($.05) per share or more. However, upon
exercise of this Warrant Certificate, the Company shall make all necessary
adjustments (to the nearest cent) not theretofore made to the Exercise Price up
to and including the effective date upon which this Warrant Certificate is
exercised.
(f) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price shall be
adjusted pursuant to this Section 3, the Company shall promptly deliver a
certificate signed by the President, a Vice President, the Chief Financial
Officer, Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company made any determination hereunder),
by first class mail postage prepaid to each Warrantholder.
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<PAGE>
(g) CAPITAL REORGANIZATIONS AND OTHER RECLASSIFICATIONS. In case of
any capital reorganization of the Company, or of any reclassification of the
shares of Common Stock (other than a reclassification, subdivision or
combination of shares of Common Stock referred to in Paragraph 3(a)), or
in case of the consolidation of the Company with, or the merger of the Company
with, or merger of the Company into, any other corporation (other than a
reclassification of the shares of Common Stock referred to in Paragraph 3(a)
or a consolidation or merger which does not result in any reclassification
or change of the outstanding shares of Common Stock) or of the sale of the
properties and assets of the Company as, or substantially as, an entirety to any
other corporation or entity, each Warrant shall, after such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale, be exercisable, upon the terms and conditions specified in this
Warrant Certificate, for the kind, amount and number of shares or other
securities, assets, or cash to which a holder of the number of shares of Common
Stock purchasable (at the time of such capital reorganization, reclassification
of shares of Common Stock, consolidation, merger or sale) upon exercise
of such Warrant would have been entitled to receive upon such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale; and in any such case, if necessary, the provisions set forth
in this Section 3 with respect to the rights and interests thereafter of the
Warrantholder shall be appropriately adjusted so as to be applicable, as nearly
equivalent as possible, to any shares or other securities, assets, or cash
thereafter deliverable on the exercise of the Warrants. The Company shall not
effect any such consolidation, merger, or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation or
entity (if other than the Company) resulting from such consolidation or
merger or the corporation or entity purchasing such assets or other appropriate
corporation or entity shall assume, by written instrument, the obligation to
deliver to the Warrantholder such shares, securities, assets, or cash as, in
accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations hereunder. The subdivision or combination
of shares of Common Stock at any time outstanding into a greater or lesser
number of shares shall not be deemed to be a reclassification of the shares
of Common Stock for purposes of this Paragraph 3(e).
(h) ADJUSTMENTS TO OTHER SECURITIES. In the event that at any time,
as a result of an adjustment made pursuant to this Section 3, the Warrantholder
shall become entitled to purchase any shares or securities of the Company other
than the shares of Common Stock, thereafter the number of such other shares or
securities so purchasable upon exercise of each Warrant and the exercise price
for such shares or securities shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as possible to the provisions with
respect to the shares of Common Stock contained in Paragraphs 3(a) through (e),
inclusive.
(i) DEFERRAL OF ISSUANCE OF ADDITIONAL SHARES IN CERTAIN
CIRCUMSTANCES. In any case in which this Section 3 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the Warrantholder exercised after such record date the shares
of Common Stock, if any, issuable upon such exercise over and above the
Warrant Shares, if any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment; provided, however, that the
Company shall deliver as soon as practicable to such holder a due bill or other
appropriate instrument provided by the Company evidencing such holder's right
to receive such additional shares of Common Stock upon the occurrence of the
event requiring such adjustment.
-6-
<PAGE>
4. DEFINITION OF COMMON STOCK.
The Common Stock issuable upon exercise of the Warrants shall be the
Common Stock as constituted on the date hereof except as otherwise provided in
Section 3.
5. REPLACEMENT OF SECURITIES.
If this Warrant Certificate shall be lost, stolen, mutilated or
destroyed, the Company shall, on such terms as to indemnity or otherwise as the
Company may in its discretion reasonably impose, issue a new certificate of like
tenor or date representing in the aggregate the right to subscribe for and
purchase the number of shares of Common Stock which may be subscribed for and
purchased hereunder. Any such new certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
6. REGISTRATION.
This Warrant Certificate, as well as all other warrant certificates
representing Warrants shall be numbered and shall be registered in a register
(the "Warrant Register") maintained at the Company Offices as they are issued.
The Warrant Register shall list the name, address and Social Security or other
Federal Identification Number, if any, of all Warrantholders. The Company shall
be entitled to treat the Warrantholder as set forth in the Warrant Register as
the owner in fact of the Warrants as set forth therein for all purposes and
shall not be bound to recognize any equitable or other claim to or interest in
such Warrants on the part of any other person, and shall not be liable for any
registration of transfer of Warrants that are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with such knowledge of such facts
that its participation therein amounts to bad faith.
7. TRANSFER.
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES
OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH
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SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
8. EXCHANGE OF WARRANT CERTIFICATES.
This Warrant Certificate may be exchanged for another certificate or
certificates entitling the Warrantholder thereof to purchase a like aggregate
number of Warrant Shares as this Warrant Certificate entitles such Warrantholder
to purchase. A Warrantholder desiring to so exchange this Warrant Certificate
shall make such request in writing delivered to the Company, and shall surrender
this Warrant Certificate therewith. Thereupon, the Company shall execute and
deliver to the person entitled thereto a new certificate or certificates, as the
case may be, as so requested.
9. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given when delivered in person, against written receipt
therefor, or two days after being sent, by registered or certified mail, postage
prepaid, return receipt requested, and, if to the Warrantholder, at such address
as is shown on the Warrant Register or as may otherwise may have been furnished
to the Company in writing in accordance with this Section 9 by the Warrantholder
and, if to the Company, at the Company Offices or such other address as the
Company shall give notice thereof to the Warrantholder in accordance with this
Section 9.
10. REGISTRATION RIGHTS.
(a) Defined Terms. As used in this Section 10, terms defined
elsewhere herein shall have their assigned meanings and each of the following
terms shall have the following meanings (such definitions to be applicable
to both the plural and singular of the terms defined):
(i) Registerable Securities. The term "Registerable
Securities" shall mean any of the Warrant Shares, including any shares of
Common Stock or other securities received in connection with any stock
split, stock divided, merger, reorganization, recapitalization,
reclassification or other distribution payable or issuable upon shares of
Common Stock. For the purposes of this Agreement, securities will cease to
be Registerable Securities when (A) a registration statement under the
Securities Act covering such Registerable Securities has been declared
effective and either (1) such Registerable Securities have been disposed of
pursuant to such effective registration statement or (2) (I) such
Registerable Securities remain covered by such effective Registration
Statement, (II) such Registerable Securities have been withdrawn from such
Registration Statement at the request or demand of the holder of such
Registerable Securities or (III) such registration statement has been
withdrawn at the request or demand of the holder of such Registerable
Securities, (B) such Registerable Securities are distributed to the public
pursuant to the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act, including, but not limited
to, Rules 144 and 144A promulgated under the Securities Act, or (C) such
Registerable Securities have been otherwise transferred and the Company, in
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accordance with applicable law and regulations, has delivered new
certificates or other evidences of ownership for such securities which are
not subject to any stop transfer order or other restriction on transfer.
(ii) Rightsholders. The term "Rightsholders" shall include
the Warrantholder, all successors and assigns of the Warrantholder, and all
transferees of Registerable Securities where such transfer affirmatively
includes the transfer and assignment of the rights of the transferor
Rightsholder under this Agreement with respect to the transferred
Registerable Securities; provided, however, the term "Rightsholders" shall
not include any person or entity who has sold, transferred or assigned all
of such person's or entity's Registerable Securities.
(iii) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Section 10 shall refer to this
Section 10 as a whole and not to any particular provision of this Section
10, and subsection, paragraph, clause, schedule and exhibit references are
to this Section 10 unless otherwise specified.
(b) Demand Registration.
(i) The Company hereby covenants and agrees to register
(the "Demand Registration"), under the Securities Act, all of the
Registerable Securities.
(ii) Number of Demand Registrations; Expenses. The holders
of Registerable Securities shall be entitled, in the aggregate, to one
Demand Registration, the Registration Expenses (as defined in Paragraph
10(e) hereof) of which, subject to the provisions of Paragraph 10(e), shall
be borne by the Company, but the Company shall not be responsible for the
payment of any underwriter's discount, commission or selling concession in
connection with any of the Registerable Securities. The Company shall not
be deemed to have effected a Demand Registration unless and until such
Demand Registration is declared effective.
(iii) Approval of Underwriter by the Company. If the Demand
Registration is to involve an underwritten offering, the managing
underwriter(s) and each selling agent selected by those Rightsholders
participating in each such underwritten offering shall be Subject to the
written approval of the Company, which approval may not be unreasonably
withheld.
(vi) "Initiating Holders" Defined. For purposes of this
Agreement, the term "Initiating Holders" shall mean, on any given date,
those Rightsholders holding Registerable Securities which would aggregate
50% or more of the total Registerable Securities that would be outstanding
on such date.
(c) Piggy-Back Registration.
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(i) If, at any time on or after the date on which this
warrant certificate has been issued and on or prior to two years after the
Expiration Time, the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company or any
other party of any class of equity security similar to any Registerable
Securities (other than a registration statement on Form S-4 or S-8 or any
successor form or a registration statement filed solely in connection with
an exchange offer, a business combination transaction or an offering of
securities solely to the existing stockholders or employees of the
Company), then the Company, on each such occasion, shall give written
notice (each, a "Company Piggy-Back Notice") of such proposed filing to
all of the Rightsholders owning Registerable Securities at least 20 days
before the anticipated filing date of such registration statement, and
such Company Piggy-Back Notice also shall be required to offer to such
Rightsholders the opportunity to register such aggregate number of
Registerable Securities as each such Rightsholder may request. Each such
Rightsholder shall have the right, exercisable for the ten days immediately
following the giving of the Company Piggy-Back Notice, to request, by
written notice (each, a "Holder Notice") to the Company, the inclusion
of all or any portion of the Registerable Securities of such
Rightsholders in such registration statement. The Company shall use
reasonable efforts to cause the managing underwriter(s) of a proposed
underwritten offering to permit the inclusion of the Registerable
Securities which were the subject of all Holder Notices in such
underwritten offering on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding anything
to the contrary contained in this Paragraph 10(c)(i), if the managing
underwriter(s) of such underwritten offering (or, in the case of an
offering not being underwritten, the Company) delivers a written opinion
(or, in the case of the Company, a resolution of its Board of Directors
certified by the President or Secretary of the Company) to the
Rightsholders of Registerable Securities which were the subject of all
Holder Notices that the total amount and kind of securities which they, the
Company and any other person Intend to include in such offering is such as
to materially and adversely affect the success of such offering, then the
amount of securities to be offered for the accounts of such Rightsholders
and persons other than the Company shall be eliminated or reduced pro rata
(based on the amount of securities owned by such Rightsholders and other
persons which carry registration rights) to the extent necessary to reduce
the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter(s) in its written opinion
(or the Board of Directors in its resolution).
(ii) Number of Piggy-Back Registrations; Expenses. The
obligations of the Company under this Paragraph 10(c) shall be unlimited
with respect to each Rightsholder. Subject to the provisions of Paragraph
10(e) hereof, the Company will pay all Registration Expenses in connection
with any registration of Registerable Securities effected pursuant to this
Paragraph 10(c), but the Company shall not be responsible for the payment
of any underwriter's discount, commission or selling concession in
connection therewith.
(iii) Withdrawal or Suspension of Registration Statement.
Notwithstanding anything contained to the contrary in this Paragraph 10(c),
the Company shall have the absolute right, whether before or after the
giving of a Company Piggy-Back Notice or Holder Notice, to determine not to
file a registration statement to which the
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Rightsholders shall have the right to include their Registerable Securities
therein pursuant to this Paragraph 10(c), to withdraw such registration
statement or to delay or suspend pursuing the effectiveness of such
registration statement. In the event of such a determination after the
giving of a Company Piggy-Back Notice, the Company shall give notice
of such determination to all Rightsholders and, thereupon, (A) in the
case of a determination not to register or to withdraw such registration
statement, the Company shall be relieved of its obligation under this
Paragraph 10(c) to register any of the Registerable Securities in
connection with such registration and (B) in the case of a determination to
delay the registration, the Company shall be permitted to delay or suspend
the registration of Registerable Securities pursuant to this Paragraph
10(c) for the same period as the delay in the registration of such other
securities. No registration effected under this Paragraph 10(c) shall
relieve the Company of its obligation to effect any registration upon
demand otherwise granted to a Rightsholder under Paragraph 10(b)
hereof or any other agreement with the Company.
(d) Registration Procedures.
(i) Obligations of the Company. The Company will, in connection
with any registration pursuant to Paragraph 10(b) or (c) hereof, as
expeditiously as possible:
(A) prepare and file with the Commission a registration
statement under the Securities Act on any appropriate form chosen by
the Company, in its sole discretion, which shall be available for the
sale of all Registerable Securities in accordance with the intended
method(s) of distribution thereof set forth in all applicable Demand
Requests, Tag-Along Requests and Holder Notices, and use its
commercially reasonable best efforts to cause such registration
statement to become effective as soon thereafter as reasonably
practicable; provided, that, at least five business days before filing
with the Commission of such registration statement, the Company shall
furnish to each Rightsholder whose Registerable Securities are
included therein draft copies of such registration statement,
including all exhibits thereto and documents incorporated by reference
therein, and, upon the reasonable request of any such Rightsholder,
shall continue to provide drafts of such registration statement until
filed, and, after such filing, the Company shall, as diligently as
practicable, provide to each such Rightsholders such number of copies
of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus), all exhibits thereto and documents
incorporated by reference therein and such other documents as such
Rightsholder may reasonably request in order to facilitate the
disposition of the Registerable Securities owned by such Rightsholder
and included in such registration statement; provided, further, the
Company shall modify or amend the registration statement as it relates
to such Rightsholder as reasonably requested by such Rightsholder on a
timely basis, and shall reasonably consider other changes to the
registration statement (but not including any exhibit or document
incorporated therein by reference) reasonably requested by such
Rightsholder on a timely basis, in light of the requirements of the
Securities Act and any other applicable laws and
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<PAGE>
regulations; and provided, further, that the obligation of the
Company to effect such registration and/or cause such registration
statement to become effective, may be postponed for (1) such
period of time when the financial statements of the Company required
to be included in such registration statement are not available (due
solely to the fact that such financial statements have not been
prepared in the regular course of business of the Company) or (2)
any other bona fide corporate purpose, but then only for a period not
to exceed 90 days;
(B) prepare and file with the Commission such
amendments and post-effective amendments to a registration statement
as may be necessary to keep such registration statement effective for
up to nine months; and cause the related prospectus to be supplemented
by any required prospectus supplement, and as so supplemented to be
filed to the extent required pursuant to Rule 424 promulgated under
the Securities Act, during such nine-month period; and otherwise
comply with the provisions of the Securities Act with respect to the
disposition of all Registerable Securities covered by such
registration statement during the applicable period in accordance with
the intended method(s) of disposition of such Registerable Securities
set forth in such registration statement, prospectus or supplement to
such prospectus;
(C) notify the Rightsholders whose Registerable
Securities are included in such registration statement and the
managing underwriter(s), if any, of an underwritten offering of any of
the Registerable Securities included in such registration statement,
and confirm such advice in writing, (1) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and,
with respect to a registration statement or any post-effective
amendment, when the same has become effective, (2) of any request by
the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (3) of
the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for that purpose, (4) if at any time the representations
and warranties of the Company contemplated by clause (1) of Paragraph
10(d)(i)(J) hereof cease to be true and correct, (5) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of any of the Registerable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event which makes any
statement made in the registration statement, the prospectus or any
document incorporated therein by reference untrue or which requires
the making of any changes in the registration statement or prospectus
so that such registration statement, prospectus or document
incorporated by reference will not contain any untrue statement of
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(D) make reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of such
registration statement at the earliest possible moment and to prevent
the entry of such an order;
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(E) use reasonable efforts to register or qualify
the Registerable Securities included in such registration statement
under such other securities or blue sky laws of such jurisdictions as
any Rightsholder whose Registerable Securities are included in such
registration statement reasonably requests in writing and do any and
all other acts and things which may be necessary or advisable to
enable such Rightsholder to consummate the disposition in such
jurisdictions of such Registerable Securities; provided, that the
Company will not be required to (1) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this Paragraph 10(d)(i)(E), (2) subject itself to
taxation in any such jurisdiction or (3) take any action which would
subject it to general service of process in any such jurisdiction;
(F) make available for inspection by each
Rightsholder whose Registerable Securities are included in such
registration, any underwriter(s) participating in any disposition
pursuant to such registration statement, and any representative, agent
or employee of or attorney or accountant retained by any such
Rightsholder or underwriter(s) (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility (or establish a due diligence defense), and cause the
officers, directors and employees of the Company to supply all
information reasonably requested by any such Inspector in connection
with such registration statement; provided, that records which the
Company determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors, unless (1) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction or
(2) the disclosure of such Records is required by any applicable law
or regulation or any governmental regulatory body with jurisdiction
over such Rightsholder or underwriter; provided, further, that such
Rightsholder or underwriter(s) agree that such Rightsholder or
underwriter(s) will, upon learning the disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(G) cooperate with the Rightsholder whose
Registerable Securities are included in such registration statement
and the managing underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Registerable
Securities to be sold thereunder, not bearing any restrictive legends,
and enable such Registerable Securities to be in such denominations
and registered in such names as such Rightsholder or any managing
underwriter(s) may reasonably request at least two business days prior
to any sale of Registerable Securities;
(H) comply with all applicable rules and
regulations of the Commission and promptly make generally available to
its security holders an earnings statement covering a period of twelve
months commencing, (1) in an
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underwritten offering, at the end of any fiscal quarter in which
Registerable Securities are sold to underwriter(s), or (2) in a
non-underwritten offering, with the first month of the Company's
first fiscal quarter beginning after the effective date of such
registration statement, which earnings statement in each case
shall satisfy the provisions of Section 11(a) of the Securities Act;
(I) provide a CUSIP number for all Registerable
Securities not later than the effective date of the registration
statement relating to the first public offering of Registerable
Securities of the Company pursuant hereto;
(J) enter into such customary agreements
(including an underwriting agreement in customary form) and take all
such other actions reasonably requested by the Rightsholders holding a
majority of the Registerable Securities included in such registration
statement or the managing underwriter(s) in order to expedite and
facilitate the disposition of such Registerable Securities and in such
connection, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration,
(1) make such representations and warranties, if any, to the holders
of such Registerable Securities and any underwriter(s) with respect to
the registration statement, prospectus and documents incorporated by
reference, if any, in form, substance and scope as are customarily
made by issuers to underwriter(s) in underwritten offerings and
confirm the same if and when requested, (2) obtain opinions of counsel
to the Company and updates thereof addressed to each such Rightsholder
and the underwriter(s), if any, with respect to the registration
statement, prospectus and documents incorporated by reference, if any,
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Rightsholders and underwriter(s), (3) obtain a "cold
comfort" letter and updates thereof from the Company's independent
certified public accountants addressed to such Rightsholders and to
the underwriter(s), if any, which letters shall be in customary form
and cover matters of the type customarily covered in "cold comfort"
letters by accountants in connection with underwritten offerings, and
(4) deliver such documents and certificates as may be reasonably
requested by the Rightsholders holding a majority of such Registerable
Securities and managing underwriter(s), if any, to evidence compliance
with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; each such action
required by this Paragraph 10(d)(i)(J) shall be done at each closing
under such underwriting or similar agreement or as and to the extent
required thereunder; and
(K) if requested by the holders of a majority of
the Registerable Securities included in such registration statement,
use its best efforts to cause all Registerable Securities which are
included in such registration statement to be listed, subject to
notice of issuance, by the date of the first sale of such Registerable
Securities pursuant to such registration statement, on each securities
exchange, if any, on which securities similar to the Registered
Securities are listed.
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(ii) Obligations of Rightsholders. In connection with any
registration of Registerable Securities of a Rightsholder pursuant to
Paragraph 10(b) or (c) hereof:
(A) The Company may require that each Rightsholder
whose Registerable Securities are included in such registration
statement furnish to the Company such information regarding the
distribution of such Registerable Securities and such Rightsholder as
the Company may from time to time reasonably request in writing; and
(B) Each Rightsholder, upon receipt of any notice
from the Company of the happening of any event of the kind described
in clauses (2), (3), (5) and (6) of Paragraph 10(d)(i)(C) hereof,
shall forthwith discontinue disposition of Registerable Securities
pursuant to the registration statement covering such Registerable
Securities until such Rightsholder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (1) of
Paragraph 10(d)(i)(C) hereof, or until such Rightsholder is advised in
writing (the "Advice") by the Company that the use of the applicable
prospectus may be resumed, and until such Rightsholder has received
copies of any additional or supplemental filings which are
incorporated by reference in or to be attached to or included with
such prospectus, and, if so directed by the Company, such Rightsholder
will deliver to the Company (at the expense of the Company) all
copies, other than permanent file copies then in the possession of
such Rightsholder, of the current prospectus covering such
Registerable Securities at the time of receipt of such notice; the
Company shall have the right to demand that such Rightsholder or other
holder verify its agreement to the provisions of this Paragraph 10(d)
(ii)(B) in any Demand Request, Tag-Along Request or Holder Notice of
the Rightsholder or in a separate document executed by the
Rightsholder.
(e) Registration Expenses. All expenses incident to the performance
of or compliance with this Agreement by the Company, including, without
imitation, all registration and filing fees of the Commission, National
Association of Securities Dealers, Inc. and other agencies, fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registerable Securities), rating agency fees, printing expenses, messenger
and delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing, if any, of the Registerable Securities on any securities exchange and
fees and disbursements of counsel for the Company and the Company's
independent certified public accountants (including the expenses of any
special audit or "cold comfort" letters required by or incidental to such
performance), Securities Act or other liability insurance (if the Company
elects to obtain such insurance), the fees and expenses of any special experts
retained by the Company in connection with such registration and the fees and
expenses of any other person retained by the Company (but not including any
underwriting discounts or commissions attributable to the sale of
Registerable Securities or other out-of-pocket expenses of the Rightsholders,
or the agents who act on their behalf, unless reimbursement is specifically
approved by the Company) will be borne by the Company. All such
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expenses are herein referred to as "Registration Expenses." Notwithstanding
the foregoing, the Company shall not be required to pay for any Registration
Expenses of any Demand Registration if such Demand Request is subsequently
withdrawn at the request of the holders of a majority of the Registerable
Securities included in such Demand Registration (in which case all Rightsholders
which requested the withdrawal of the Demand Registration shall bear such
expenses pro rata); provided that, if, at the time of such withdrawal, such
Rightsholders have learned of a material adverse change in the condition,
business or prospects of the Company from that known to such Rightsholders at
the time of their Demand Request, such Rightsholders shall not be required to
pay any of such expenses. In either event, if such Rightsholders pay in full the
expenses of such withdrawn Demand Registration, such Rightsholders shall retain
the right to one Demand Registration.
(f) Indemnification: Contribution.
(i) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Rightsholder, its officers and directors and each person who controls such
Rightsholder (within the meaning of the Securities Act), if any, and any
agent thereof against all losses, claims, damages, liabilities and expenses
incurred by such party pursuant to any actual or threatened suit, action,
proceeding or investigation (including reasonable attorney's fees and
expenses of investigation) arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in
the light of the circumstances under which they were made) not misleading,
except insofar as the same arise out of or are based upon, any such untrue
statement or omission based upon information with respect to such
Rightsholder furnished in writing to the Company by such Rightsholder
expressly for use therein.
(ii) Indemnification by Rightsholder. In connection with
any registration statement in which a Rightsholder is participating, each
such Rightsholder will be required to furnish to the Company in writing
such information with respect to such Rightsholder as the Company
reasonably requests for use in connection with any such registration
statement or prospectus, and each Rightsholder agrees to the extent it is
such a holder of Registerable Securities included in such registration
statement, and each other such holder of Registerable Securities included
in such Registration Statement will be required to agree, to indemnify,
to the full extent permitted by law, the Company, the directors and
officers of the Company and each person who controls the Company (within
the meaning of the Securities Act) and any agent thereof, against any
losses, claims, damages, liabilities and expenses (including reasonable
attorney's fees and expenses of investigation incurred by such party
pursuant to any actual or threatened suit, action, proceeding or
investigation arising out of or based upon any untrue or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact necessary, to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they are made)
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is based upon information relating
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to such Rightsholder or other holder furnished in writing to the Company
expressly for use therein.
(iii) Conduct of Indemnification Proceedings. Promptly
after receipt by an indemnified party under this Paragraph 10(f) of written
notice of the commencement of any action, proceeding, suit or investigation
or threat thereof made in writing for which such indemnified party may
claim indemnification or contribution pursuant to this Agreement, such
indemnified party shall notify in writing the indemnifying party of such
commencement or threat; but the omission so to notify the indemnifying
party shall not relieve the indemnifying party from any liability which the
indemnifying party may have to any indemnified party (A) hereunder, unless
the indemnifying party is actually prejudiced thereby, or (B) otherwise
than under this Paragraph 10(f). In case any such action, suit or
proceeding shall be brought against any indemnified party, and the
indemnified party shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein
and the indemnifying party shall assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party, and the obligation to pay
all expenses relating thereto. The indemnified party shall have the right
to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party has agreed to pay such fees and expenses, (B) the
indemnifying party shall have failed to assume the defense of such action,
suit or proceeding or to employ counsel reasonably satisfactory to the
indemnified party therein or to pay all expenses relating thereto or (C)
the named parties to any such action or proceeding (including any impleaded
parties) include both the indemnified party and the indemnifying party and
the indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to the indemnified party which are
different from or additional to those available to the indemnifying party
and which may result in a conflict between the indemnifying party and such
indemnified party (in which case, if the indemnified party notifies the
indemnifying party in writing that the indemnified party elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action or
proceeding on behalf of the indemnified party; it being understood,
however, that the indemnifying party shall not, in connection with any
one such action, suit or proceeding or separate but substantially similar
or related actions, suits or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys at any time
for the indemnified party, which firm shall be designated in writing by the
indemnified party).
(iv) Contribution. If the indemnification provided for in
this Paragraph 10(f) from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses (A) in such proportion as
is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other
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or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the relative fault of the
indemnifying party and indemnified party, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and the indemnified parties shall be determined by reference to, among
other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitation
set forth in Paragraph 10(f)(v), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Paragraph 10(f)(iv) were
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to in clauses (A) and (B) of the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(v) Limitation. Anything to the contrary contained in this
Paragraph 10(f) or in Paragraph 10(g) notwithstanding, no holder of
Registerable Securities shall be liable for indemnification and
contribution payments aggregating an amount in excess of the maximum amount
received by such holder in connection with any sale of Registerable
Securities as contemplated herein.
(g) Participation in Underwritten Registration. No Rightsholder may
participate in any underwritten registration hereunder unless such Rightsholder
(i) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange
Act and (ii) completes and executes all questionnaires, appropriate and limited
powers of attorney, escrow agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangement; provided, that all such documents shall be consistent with the
provisions of Paragraph 10(e) hereof.
11. MISCELLANEOUS.
This Warrant Certificate and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This certificate is deemed to have been delivered in the State of New
York and shall be construed and enforced in accordance with and governed by
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<PAGE>
the laws of such State. The headings in this Warrant Certificate are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
12. EXPIRATION.
Unless as hereinafter provided, the right to exercise these
Warrants shall expire at the Expiration Time.
Dated: January 8, 2000
VIZACOM INC.
By: /s/ Mark E. Leininger
Mark E. Leininger, President
ATTEST:
/s/ Marc E. Jaffe
Marc E. Jaffe, Secretary
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EXERCISE FORM
Dated: ,
---------------- ----
TO: VIZACOM INC.:
The undersigned hereby irrevocably elects to exercise the within
Warrant, to the extent of purchasing _________________ shares of Common Stock,
and hereby makes payment of ____________ in payment of the actual Exercise Price
thereof.
-------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
-------------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
-------------------------------------------------------------
Address:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
--------------------------
Signature:
-------------------------------------------------------------
(Signature must conform in all respects to the name of the
Warrantholder as set forth on the face of this Warrant
Certificate.)
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<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED,
---------------------------------------------
(Please type or print in block letters)
hereby sells, assigns and transfers unto:
Name:
----------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
----------------------------------------------------------
Address:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
this Warrant Certificate and the Warrants represented by this Warrant
Certificate to the extent of ________________ Warrants and does hereby
irrevocably constitute and appoint __________________________ Attorney-in-Fact,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Dated:
----------------------
Signature:
----------------------------------------------------------
(Signature must conform in all respects to the name of
the Warrantholder as set forth on the face of this
Warrant Certificate.)
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NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES OF
COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
VOID AFTER 5:00 P.M. ON JANUARY 7, 2003
VIZACOM INC.
WARRANT CERTIFICATE
90,000 COMMON STOCK PURCHASE WARRANTS
Teaneck, New Jersey
Warrant Certificate No. AA-3 January 8, 2000
THIS IS TO CERTIFY THAT, for value received, Arel AMG, Inc., a
Delaware corporation or registered assigns (the "Warrantholder") permitted by
the terms of this Warrant Certificate, is the registered owner of the number of
Common Stock Purchase Warrants (each, a "Warrant") set forth above, each Warrant
entitling the owner thereof to purchase from Vizacom Inc., a Delaware
Corporation (the "Company"), at any time commencing on or after the date on
which the Company or an affiliate of the Company consummates two acquisitions of
companies located in Europe that was introduced to the Company by Schlomo Lazar
or the Warrantholder (the "Commencement Time") on or prior to 5:00 P.M., New
York City time, on January 7, 2003 (the "Expiration Time"), one duly authorized,
validly issued, fully paid and nonassessable share (each, a "Warrant Share") of
the common stock, par value $.001 per share ("Common Stock"), of the Company, at
a purchase price of $3.00 per share (the "Purchase Price"), all subject to the
terms and conditions contained herein. The number of Warrants evidenced by this
Warrant Certificate (and the number and kind of securities which may be
purchased upon exercise hereof) set forth above, and the Purchase Price per
share set forth above, are as of the date hereof. As provided herein, the
Purchase Price and the number of shares of Common Stock or other securities
which may be purchased upon the exercise of the Warrants evidenced by this
Warrant Certificate are, upon the happening of certain events, subject to
modification and adjustment.
<PAGE>
This Warrant Certificate, together with any warrant certificate(s)
issued in replacement or substitution hereof (as provided for herein) evidencing
all or part of the Warrants evidenced hereby, are sometimes collectively
referred to herein as the "Warrant Certificates."
The rights of the registered holder of this Warrant Certificate shall
be subject to the following further terms and conditions:
1. EXERCISE OF WARRANTS.
(a) The Warrants may be exercised, in whole or in part, on or prior
to the Expiration Time by surrendering this Warrant Certificate, with the
purchase form provided for herein duly executed by the Warrantholder or by the
Warrantholder's duly authorized attorney-in-fact, at the principal office of
the Company, presently located at Glenpointe Centre East, 300 Frank W. Burr
Boulevard - 7th Floor, Teaneck, New Jersey 07666, or at such other office or
agency in the United States as the Company may designate by notice in
writing to the Warrantholder (in either event, the "Company Offices"),
accompanied by payment in full, either in the form of cash, bank cashier's check
or certified check payable to the order of the Company, of the Exercise Price
payable in respect of the Warrants being exercised. If fewer than all of the
Warrants are exercised, the Company shall, upon each exercise prior to the
Expiration Time, execute and deliver to the Warrantholder a new Warrant
Certificate (dated as of the date hereof) evidencing the balance of the
Warrants that remain exercisable.
(b) On the date of exercise of the Warrants, the Warrantholder
exercising same shall be deemed to have become the holder of record for all
purposes of the Warrant Shares to which the exercise relates.
(c) As soon as practicable, but not in excess of ten days, after the
exercise of all or part of the Warrants evidenced by this Warrant Certificate,
the Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the
Warrantholder a certificate or certificates evidencing the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares to which
the Warrantholder shall be entitled upon such exercise.
(d) No certificates for fractional Warrant Shares shall be issued upon
the exercise of any of the Warrants but, in lieu thereof, the Company shall,
upon exercise of all the Warrants, round up any fractional Warrant Share to the
nearest whole share of Common Stock.
2. ISSUANCE OF COMMON STOCK; RESERVATION OF SHARES.
(a) The Company covenants and agrees that all Warrant Shares which may
be issued upon the exercise of all or part of the Warrants will, upon issuance
in accordance with the terms hereof, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
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<PAGE>
(b) The Company further covenants and agrees that if any shares of
Common Stock to be reserved for the purpose of the issuance of Warrant Shares
upon the exercise of Warrants require registration with, or approval of, any
governmental authority under any federal or state law before such shares may
be validly issued or delivered upon exercise, then the Company will promptly
use its best efforts to effect such registration or obtain such approval, as the
case may be.
3. ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND CHARACTER OF WARRANT SHARES, AND
NUMBER OF WARRANTS.
The Exercise Price the number and kind of securities purchasable upon
the exercise of each Warrant shall be subject to adjustment from time to time
upon the happening of the events enumerated in this Section 3.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case the
Company shall at any time on or before the Expiration Time:
(i) pay a dividend in shares of Common Stock [or other stock
of the Company] or make a distribution in shares of Common Stock or such
other stock to holders of all its outstanding shares of Common Stock;
(ii) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares;
(iii) combine the outstanding shares of Common Stock into a
smaller number of shares of Common Stock; or
(iv) issue by reclassification of its shares of Common Stock
other securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing corporation);
then the number and kind of Warrant Shares purchasable upon exercise of
each Warrant outstanding immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of shares of
Common Stock or other securities of the Company which the Warrantholder would
have owned or have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised in full immediately prior
to the earlier of the happening of such event or any record date in respect
thereto. In the event of any adjustment of the number of Warrant Shares
purchasable upon the exercise of each then outstanding Warrants pursuant to this
Paragraph 3(a), the Exercise Price shall be adjusted to be the amount resulting
from dividing the number of shares of Common Stock (including fractional shares
of Common Stock) covered by such Warrant immediately after such adjustment into
the total amount payable upon exercise of such Warrant in full immediately prior
to such adjustment. An adjustment made pursuant to this Paragraph 3(a) shall
become effective immediately after the effective date of such event retroactive
to the record date for any such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
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<PAGE>
(b) EXTRAORDINARY DIVIDENDS. In case the Company shall at any time on
or before the Expiration Time fix a record date for the issuance of rights,
options, or warrants to all holders of its outstanding shares of Common Stock,
entitling them (for a period expiring within 45 days after such record date) to
subscribe for or purchase shares of Common Stock (or securities exchangeable for
or convertible into shares of Common Stock) at a price per share of Common Stock
(or having an exchange or conversion price per share of Common Stock, with
respect to a security exchangeable for or convertible into shares of Common
Stock) which is lower than the current Market Price per share of Common Stock
(as defined in Paragraph 3(d) below) on such record date, then the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, of which (i) the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial exchange or
conversion price of the exchangeable or convertible securities so to be offered)
would purchase at such current Market Price and (ii) the denominator shall be
the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock to be offered for subscription or
purchase (or into which the exchangeable or convertible securities so to be
offered are initially exchangeable or convertible). Such adjustment shall become
effective at the close of business on such record date; however, to the extent
that shares of Common Stock (or securities exchangeable for or convertible into
shares of Common Stock) are not delivered after the expiration of such rights,
options, or warrants, the Exercise Price shall be readjusted (but only with
respect to Warrants exercised after such expiration) to the Exercise Price which
would then be in effect had the adjustments made upon the issuance of such
rights, options, or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities exchangeable for or convertible
into shares of Common Stock) actually issued. In case any subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company and shall be described in a statement
mailed to the Warrantholder. Shares of Common Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation.
(c) EXTRAORDINARY DISTRIBUTIONS. In case the Company shall at any time
after the original date of issuance of the Warrants (the "Date of Issuance")
distribute to all holders of its shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) evidences of its indebtedness or assets
(excluding cash dividends and distributions payable out of consolidated net
income or earned surplus in accordance with Delaware law and dividends or
distributions payable in shares of stock described in Paragraph 3(a) above) or
rights, options, or warrants or exchangeable or convertible securities
containing the right to subscribe for or purchase shares of Common Stock (or
securities exchangeable for or convertible into shares of Common Stock), then
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for such distribution by a fraction, of
which (i) the numerator shall be the current Market Price per share of Common
Stock (as defined in Paragraph 3(d)) on such record date, less the fair market
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive, and described in a notice to the
Warrantholders) of the portion of the evidences of indebtedness or assets so to
be distributed or of such rights, options or warrants applicable to one share of
Common Stock
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<PAGE>
and (ii) the denominator shall be such current Market Price per share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution retroactive to the
record date for such transaction.
(d) CURRENT MARKET PRICE DEFINED. For the purpose of any computation
under Paragraphs 3(b) and/or 3(c), the current Market Price per share of Common
Stock at any date shall be deemed to be the average daily Closing Price of the
shares of Common Stock for twenty consecutive trading days ending within fifteen
days before the date in question. The term "Closing Price" of the shares of
Common Stock for a day or days shall mean (i) if the shares of Common Stock are
listed or admitted for trading on a national securities exchange, the last
reported sales price regular way, or, in case no such reported sale takes place
on such day or days, the average of the reported closing bid and asked prices
regular way, in either case on the principal national securities exchange on
which the shares of the Common Stock are listed or admitted for trading, or
(ii) if the shares of Common Stock are not listed or admitted for trading on
a national securities exchange, (A) the last transaction price for the Common
Stock on The Nasdaq Stock Market ("Nasdaq") or, in the case no such reported
transaction takes place on such day or days, the average of the reported
closing bid and asked prices thereof quoted on Nasdaq, or (B) if the shares of
Common Stock are not quoted on Nasdaq, the average of the closing bid and asked
prices of the Common Stock as quoted on the Over-The-Counter Bulletin Board
maintained by the National Association of Securities Dealers, Inc. ( the
"Bulletin Board"), or (C) if the shares of Common Stock are not quoted on
Nasdaq nor on the Bulletin Board, the average of the closing bid and asked
prices of the common stock in the over-the-counter market, as reported by The
National Quotation Bureau, Inc., or an equivalent generally accepted reporting
service, or (iii) if on any such trading day or days the shares of Common
Stock are not quoted by any such organization, the fair market value of the
shares of Common Stock on such day or days, as determined in good faith by
the Board of Directors of the Company, shall be used.
(e) MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than five cents ($.05) per
share. Any adjustment of less than five cents ($.05) per share of any Exercise
Price shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, together with adjustment or adjustments so
carried forward, amounts to five cents ($.05) per share or more. However, upon
exercise of this Warrant Certificate, the Company shall make all necessary
adjustments (to the nearest cent) not theretofore made to the Exercise Price up
to and including the effective date upon which this Warrant Certificate is
exercised.
(f) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price shall be
adjusted pursuant to this Section 3, the Company shall promptly deliver a
certificate signed by the President, a Vice President, the Chief Financial
Officer, Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company made any determination hereunder),
by first class mail postage prepaid to each Warrantholder.
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<PAGE>
(g) CAPITAL REORGANIZATIONS AND OTHER RECLASSIFICATIONS. In case of
any capital reorganization of the Company, or of any reclassification of the
shares of Common Stock (other than a reclassification, subdivision or
combination of shares of Common Stock referred to in Paragraph 3(a)), or
in case of the consolidation of the Company with, or the merger of the Company
with, or merger of the Company into, any other corporation (other than a
reclassification of the shares of Common Stock referred to in Paragraph 3(a)
or a consolidation or merger which does not result in any reclassification
or change of the outstanding shares of Common Stock) or of the sale of the
properties and assets of the Company as, or substantially as, an entirety to any
other corporation or entity, each Warrant shall, after such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale, be exercisable, upon the terms and conditions specified in this
Warrant Certificate, for the kind, amount and number of shares or other
securities, assets, or cash to which a holder of the number of shares of Common
Stock purchasable (at the time of such capital reorganization, reclassification
of shares of Common Stock, consolidation, merger or sale) upon exercise
of such Warrant would have been entitled to receive upon such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale; and in any such case, if necessary, the provisions set forth
in this Section 3 with respect to the rights and interests thereafter of the
Warrantholder shall be appropriately adjusted so as to be applicable, as nearly
equivalent as possible, to any shares or other securities, assets, or cash
thereafter deliverable on the exercise of the Warrants. The Company shall not
effect any such consolidation, merger, or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation or
entity (if other than the Company) resulting from such consolidation or
merger or the corporation or entity purchasing such assets or other appropriate
corporation or entity shall assume, by written instrument, the obligation to
deliver to the Warrantholder such shares, securities, assets, or cash as, in
accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations hereunder. The subdivision or combination
of shares of Common Stock at any time outstanding into a greater or lesser
number of shares shall not be deemed to be a reclassification of the shares
of Common Stock for purposes of this Paragraph 3(e).
(h) ADJUSTMENTS TO OTHER SECURITIES. In the event that at any time,
as a result of an adjustment made pursuant to this Section 3, the Warrantholder
shall become entitled to purchase any shares or securities of the Company other
than the shares of Common Stock, thereafter the number of such other shares or
securities so purchasable upon exercise of each Warrant and the exercise price
for such shares or securities shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as possible to the provisions with
respect to the shares of Common Stock contained in Paragraphs 3(a) through (e),
inclusive.
(i) DEFERRAL OF ISSUANCE OF ADDITIONAL SHARES IN CERTAIN
CIRCUMSTANCES. In any case in which this Section 3 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the Warrantholder exercised after such record date the shares
of Common Stock, if any, issuable upon such exercise over and above the
Warrant Shares, if any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment; provided, however, that the
Company shall deliver as soon as practicable to such holder a due bill or other
appropriate instrument provided by the Company evidencing such holder's right
to receive such additional shares of Common Stock upon the occurrence of the
event requiring such adjustment.
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<PAGE>
4. DEFINITION OF COMMON STOCK.
The Common Stock issuable upon exercise of the Warrants shall be the
Common Stock as constituted on the date hereof except as otherwise provided in
Section 3.
5. REPLACEMENT OF SECURITIES.
If this Warrant Certificate shall be lost, stolen, mutilated or
destroyed, the Company shall, on such terms as to indemnity or otherwise as the
Company may in its discretion reasonably impose, issue a new certificate of like
tenor or date representing in the aggregate the right to subscribe for and
purchase the number of shares of Common Stock which may be subscribed for and
purchased hereunder. Any such new certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
6. REGISTRATION.
This Warrant Certificate, as well as all other warrant certificates
representing Warrants shall be numbered and shall be registered in a register
(the "Warrant Register") maintained at the Company Offices as they are issued.
The Warrant Register shall list the name, address and Social Security or other
Federal Identification Number, if any, of all Warrantholders. The Company shall
be entitled to treat the Warrantholder as set forth in the Warrant Register as
the owner in fact of the Warrants as set forth therein for all purposes and
shall not be bound to recognize any equitable or other claim to or interest in
such Warrants on the part of any other person, and shall not be liable for any
registration of transfer of Warrants that are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with such knowledge of such facts
that its participation therein amounts to bad faith.
7. TRANSFER.
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES
OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH
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<PAGE>
SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
8. EXCHANGE OF WARRANT CERTIFICATES.
This Warrant Certificate may be exchanged for another certificate or
certificates entitling the Warrantholder thereof to purchase a like aggregate
number of Warrant Shares as this Warrant Certificate entitles such Warrantholder
to purchase. A Warrantholder desiring to so exchange this Warrant Certificate
shall make such request in writing delivered to the Company, and shall surrender
this Warrant Certificate therewith. Thereupon, the Company shall execute and
deliver to the person entitled thereto a new certificate or certificates, as the
case may be, as so requested.
9. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given when delivered in person, against written receipt
therefor, or two days after being sent, by registered or certified mail, postage
prepaid, return receipt requested, and, if to the Warrantholder, at such address
as is shown on the Warrant Register or as may otherwise may have been furnished
to the Company in writing in accordance with this Section 9 by the Warrantholder
and, if to the Company, at the Company Offices or such other address as the
Company shall give notice thereof to the Warrantholder in accordance with this
Section 9.
10. REGISTRATION RIGHTS.
(a) Defined Terms. As used in this Section 10, terms defined
elsewhere herein shall have their assigned meanings and each of the following
terms shall have the following meanings (such definitions to be applicable
to both the plural and singular of the terms defined):
(i) Registerable Securities. The term "Registerable
Securities" shall mean any of the Warrant Shares, including any shares of
Common Stock or other securities received in connection with any stock
split, stock divided, merger, reorganization, recapitalization,
reclassification or other distribution payable or issuable upon shares of
Common Stock. For the purposes of this Agreement, securities will cease to
be Registerable Securities when (A) a registration statement under the
Securities Act covering such Registerable Securities has been declared
effective and either (1) such Registerable Securities have been disposed of
pursuant to such effective registration statement or (2) (I) such
Registerable Securities remain covered by such effective Registration
Statement, (II) such Registerable Securities have been withdrawn from such
Registration Statement at the request or demand of the holder of such
Registerable Securities or (III) such registration statement has been
withdrawn at the request or demand of the holder of such Registerable
Securities, (B) such Registerable Securities are distributed to the public
pursuant to the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act, including, but not limited
to, Rules 144 and 144A promulgated under the Securities Act, or (C) such
Registerable Securities have been otherwise transferred and the Company, in
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<PAGE>
accordance with applicable law and regulations, has delivered new
certificates or other evidences of ownership for such securities which are
not subject to any stop transfer order or other restriction on transfer.
(ii) Rightsholders. The term "Rightsholders" shall include
the Warrantholder, all successors and assigns of the Warrantholder, and all
transferees of Registerable Securities where such transfer affirmatively
includes the transfer and assignment of the rights of the transferor
Rightsholder under this Agreement with respect to the transferred
Registerable Securities; provided, however, the term "Rightsholders" shall
not include any person or entity who has sold, transferred or assigned all
of such person's or entity's Registerable Securities.
(iii) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Section 10 shall refer to this
Section 10 as a whole and not to any particular provision of this Section
10, and subsection, paragraph, clause, schedule and exhibit references are
to this Section 10 unless otherwise specified.
(b) Demand Registration.
(i) The Company hereby covenants and agrees to register
(the "Demand Registration"), under the Securities Act, all of the
Registerable Securities.
(ii) Number of Demand Registrations; Expenses. The holders
of Registerable Securities shall be entitled, in the aggregate, to one
Demand Registration, the Registration Expenses (as defined in Paragraph
10(e) hereof) of which, subject to the provisions of Paragraph 10(e), shall
be borne by the Company, but the Company shall not be responsible for the
payment of any underwriter's discount, commission or selling concession in
connection with any of the Registerable Securities. The Company shall not
be deemed to have effected a Demand Registration unless and until such
Demand Registration is declared effective.
(iii) Approval of Underwriter by the Company. If the Demand
Registration is to involve an underwritten offering, the managing
underwriter(s) and each selling agent selected by those Rightsholders
participating in each such underwritten offering shall be Subject to the
written approval of the Company, which approval may not be unreasonably
withheld.
(vi) "Initiating Holders" Defined. For purposes of this
Agreement, the term "Initiating Holders" shall mean, on any given date,
those Rightsholders holding Registerable Securities which would aggregate
50% or more of the total Registerable Securities that would be outstanding
on such date.
(c) Piggy-Back Registration.
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<PAGE>
(i) If, at any time on or after the date on which this
warrant certificate has been issued and on or prior to two years after the
Expiration Time, the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company or any
other party of any class of equity security similar to any Registerable
Securities (other than a registration statement on Form S-4 or S-8 or any
successor form or a registration statement filed solely in connection with
an exchange offer, a business combination transaction or an offering of
securities solely to the existing stockholders or employees of the
Company), then the Company, on each such occasion, shall give written
notice (each, a "Company Piggy-Back Notice") of such proposed filing to
all of the Rightsholders owning Registerable Securities at least 20 days
before the anticipated filing date of such registration statement, and
such Company Piggy-Back Notice also shall be required to offer to such
Rightsholders the opportunity to register such aggregate number of
Registerable Securities as each such Rightsholder may request. Each such
Rightsholder shall have the right, exercisable for the ten days immediately
following the giving of the Company Piggy-Back Notice, to request, by
written notice (each, a "Holder Notice") to the Company, the inclusion
of all or any portion of the Registerable Securities of such
Rightsholders in such registration statement. The Company shall use
reasonable efforts to cause the managing underwriter(s) of a proposed
underwritten offering to permit the inclusion of the Registerable
Securities which were the subject of all Holder Notices in such
underwritten offering on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding anything
to the contrary contained in this Paragraph 10(c)(i), if the managing
underwriter(s) of such underwritten offering (or, in the case of an
offering not being underwritten, the Company) delivers a written opinion
(or, in the case of the Company, a resolution of its Board of Directors
certified by the President or Secretary of the Company) to the
Rightsholders of Registerable Securities which were the subject of all
Holder Notices that the total amount and kind of securities which they, the
Company and any other person Intend to include in such offering is such as
to materially and adversely affect the success of such offering, then the
amount of securities to be offered for the accounts of such Rightsholders
and persons other than the Company shall be eliminated or reduced pro rata
(based on the amount of securities owned by such Rightsholders and other
persons which carry registration rights) to the extent necessary to reduce
the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter(s) in its written opinion
(or the Board of Directors in its resolution).
(ii) Number of Piggy-Back Registrations; Expenses. The
obligations of the Company under this Paragraph 10(c) shall be unlimited
with respect to each Rightsholder. Subject to the provisions of Paragraph
10(e) hereof, the Company will pay all Registration Expenses in connection
with any registration of Registerable Securities effected pursuant to this
Paragraph 10(c), but the Company shall not be responsible for the payment
of any underwriter's discount, commission or selling concession in
connection therewith.
(iii) Withdrawal or Suspension of Registration Statement.
Notwithstanding anything contained to the contrary in this Paragraph 10(c),
the Company shall have the absolute right, whether before or after the
giving of a Company Piggy-Back Notice or Holder Notice, to determine not to
file a registration statement to which the
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<PAGE>
Rightsholders shall have the right to include their Registerable Securities
therein pursuant to this Paragraph 10(c), to withdraw such registration
statement or to delay or suspend pursuing the effectiveness of such
registration statement. In the event of such a determination after the
giving of a Company Piggy-Back Notice, the Company shall give notice
of such determination to all Rightsholders and, thereupon, (A) in the
case of a determination not to register or to withdraw such registration
statement, the Company shall be relieved of its obligation under this
Paragraph 10(c) to register any of the Registerable Securities in
connection with such registration and (B) in the case of a determination to
delay the registration, the Company shall be permitted to delay or suspend
the registration of Registerable Securities pursuant to this Paragraph
10(c) for the same period as the delay in the registration of such other
securities. No registration effected under this Paragraph 10(c) shall
relieve the Company of its obligation to effect any registration upon
demand otherwise granted to a Rightsholder under Paragraph 10(b)
hereof or any other agreement with the Company.
(d) Registration Procedures.
(i) Obligations of the Company. The Company will, in connection
with any registration pursuant to Paragraph 10(b) or (c) hereof, as
expeditiously as possible:
(A) prepare and file with the Commission a registration
statement under the Securities Act on any appropriate form chosen by
the Company, in its sole discretion, which shall be available for the
sale of all Registerable Securities in accordance with the intended
method(s) of distribution thereof set forth in all applicable Demand
Requests, Tag-Along Requests and Holder Notices, and use its
commercially reasonable best efforts to cause such registration
statement to become effective as soon thereafter as reasonably
practicable; provided, that, at least five business days before filing
with the Commission of such registration statement, the Company shall
furnish to each Rightsholder whose Registerable Securities are
included therein draft copies of such registration statement,
including all exhibits thereto and documents incorporated by reference
therein, and, upon the reasonable request of any such Rightsholder,
shall continue to provide drafts of such registration statement until
filed, and, after such filing, the Company shall, as diligently as
practicable, provide to each such Rightsholders such number of copies
of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus), all exhibits thereto and documents
incorporated by reference therein and such other documents as such
Rightsholder may reasonably request in order to facilitate the
disposition of the Registerable Securities owned by such Rightsholder
and included in such registration statement; provided, further, the
Company shall modify or amend the registration statement as it relates
to such Rightsholder as reasonably requested by such Rightsholder on a
timely basis, and shall reasonably consider other changes to the
registration statement (but not including any exhibit or document
incorporated therein by reference) reasonably requested by such
Rightsholder on a timely basis, in light of the requirements of the
Securities Act and any other applicable laws and
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<PAGE>
regulations; and provided, further, that the obligation of the
Company to effect such registration and/or cause such registration
statement to become effective, may be postponed for (1) such
period of time when the financial statements of the Company required
to be included in such registration statement are not available (due
solely to the fact that such financial statements have not been
prepared in the regular course of business of the Company) or (2)
any other bona fide corporate purpose, but then only for a period not
to exceed 90 days;
(B) prepare and file with the Commission such
amendments and post-effective amendments to a registration statement
as may be necessary to keep such registration statement effective for
up to nine months; and cause the related prospectus to be supplemented
by any required prospectus supplement, and as so supplemented to be
filed to the extent required pursuant to Rule 424 promulgated under
the Securities Act, during such nine-month period; and otherwise
comply with the provisions of the Securities Act with respect to the
disposition of all Registerable Securities covered by such
registration statement during the applicable period in accordance with
the intended method(s) of disposition of such Registerable Securities
set forth in such registration statement, prospectus or supplement to
such prospectus;
(C) notify the Rightsholders whose Registerable
Securities are included in such registration statement and the
managing underwriter(s), if any, of an underwritten offering of any of
the Registerable Securities included in such registration statement,
and confirm such advice in writing, (1) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and,
with respect to a registration statement or any post-effective
amendment, when the same has become effective, (2) of any request by
the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (3) of
the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for that purpose, (4) if at any time the representations
and warranties of the Company contemplated by clause (1) of Paragraph
10(d)(i)(J) hereof cease to be true and correct, (5) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of any of the Registerable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event which makes any
statement made in the registration statement, the prospectus or any
document incorporated therein by reference untrue or which requires
the making of any changes in the registration statement or prospectus
so that such registration statement, prospectus or document
incorporated by reference will not contain any untrue statement of
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(D) make reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of such
registration statement at the earliest possible moment and to prevent
the entry of such an order;
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<PAGE>
(E) use reasonable efforts to register or qualify
the Registerable Securities included in such registration statement
under such other securities or blue sky laws of such jurisdictions as
any Rightsholder whose Registerable Securities are included in such
registration statement reasonably requests in writing and do any and
all other acts and things which may be necessary or advisable to
enable such Rightsholder to consummate the disposition in such
jurisdictions of such Registerable Securities; provided, that the
Company will not be required to (1) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this Paragraph 10(d)(i)(E), (2) subject itself to
taxation in any such jurisdiction or (3) take any action which would
subject it to general service of process in any such jurisdiction;
(F) make available for inspection by each
Rightsholder whose Registerable Securities are included in such
registration, any underwriter(s) participating in any disposition
pursuant to such registration statement, and any representative, agent
or employee of or attorney or accountant retained by any such
Rightsholder or underwriter(s) (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility (or establish a due diligence defense), and cause the
officers, directors and employees of the Company to supply all
information reasonably requested by any such Inspector in connection
with such registration statement; provided, that records which the
Company determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors, unless (1) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction or
(2) the disclosure of such Records is required by any applicable law
or regulation or any governmental regulatory body with jurisdiction
over such Rightsholder or underwriter; provided, further, that such
Rightsholder or underwriter(s) agree that such Rightsholder or
underwriter(s) will, upon learning the disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(G) cooperate with the Rightsholder whose
Registerable Securities are included in such registration statement
and the managing underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Registerable
Securities to be sold thereunder, not bearing any restrictive legends,
and enable such Registerable Securities to be in such denominations
and registered in such names as such Rightsholder or any managing
underwriter(s) may reasonably request at least two business days prior
to any sale of Registerable Securities;
(H) comply with all applicable rules and
regulations of the Commission and promptly make generally available to
its security holders an earnings statement covering a period of twelve
months commencing, (1) in an
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<PAGE>
underwritten offering, at the end of any fiscal quarter in which
Registerable Securities are sold to underwriter(s), or (2) in a
non-underwritten offering, with the first month of the Company's
first fiscal quarter beginning after the effective date of such
registration statement, which earnings statement in each case
shall satisfy the provisions of Section 11(a) of the Securities Act;
(I) provide a CUSIP number for all Registerable
Securities not later than the effective date of the registration
statement relating to the first public offering of Registerable
Securities of the Company pursuant hereto;
(J) enter into such customary agreements
(including an underwriting agreement in customary form) and take all
such other actions reasonably requested by the Rightsholders holding a
majority of the Registerable Securities included in such registration
statement or the managing underwriter(s) in order to expedite and
facilitate the disposition of such Registerable Securities and in such
connection, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration,
(1) make such representations and warranties, if any, to the holders
of such Registerable Securities and any underwriter(s) with respect to
the registration statement, prospectus and documents incorporated by
reference, if any, in form, substance and scope as are customarily
made by issuers to underwriter(s) in underwritten offerings and
confirm the same if and when requested, (2) obtain opinions of counsel
to the Company and updates thereof addressed to each such Rightsholder
and the underwriter(s), if any, with respect to the registration
statement, prospectus and documents incorporated by reference, if any,
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Rightsholders and underwriter(s), (3) obtain a "cold
comfort" letter and updates thereof from the Company's independent
certified public accountants addressed to such Rightsholders and to
the underwriter(s), if any, which letters shall be in customary form
and cover matters of the type customarily covered in "cold comfort"
letters by accountants in connection with underwritten offerings, and
(4) deliver such documents and certificates as may be reasonably
requested by the Rightsholders holding a majority of such Registerable
Securities and managing underwriter(s), if any, to evidence compliance
with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; each such action
required by this Paragraph 10(d)(i)(J) shall be done at each closing
under such underwriting or similar agreement or as and to the extent
required thereunder; and
(K) if requested by the holders of a majority of
the Registerable Securities included in such registration statement,
use its best efforts to cause all Registerable Securities which are
included in such registration statement to be listed, subject to
notice of issuance, by the date of the first sale of such Registerable
Securities pursuant to such registration statement, on each securities
exchange, if any, on which securities similar to the Registered
Securities are listed.
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<PAGE>
(ii) Obligations of Rightsholders. In connection with any
registration of Registerable Securities of a Rightsholder pursuant to
Paragraph 10(b) or (c) hereof:
(A) The Company may require that each Rightsholder
whose Registerable Securities are included in such registration
statement furnish to the Company such information regarding the
distribution of such Registerable Securities and such Rightsholder as
the Company may from time to time reasonably request in writing; and
(B) Each Rightsholder, upon receipt of any notice
from the Company of the happening of any event of the kind described
in clauses (2), (3), (5) and (6) of Paragraph 10(d)(i)(C) hereof,
shall forthwith discontinue disposition of Registerable Securities
pursuant to the registration statement covering such Registerable
Securities until such Rightsholder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (1) of
Paragraph 10(d)(i)(C) hereof, or until such Rightsholder is advised in
writing (the "Advice") by the Company that the use of the applicable
prospectus may be resumed, and until such Rightsholder has received
copies of any additional or supplemental filings which are
incorporated by reference in or to be attached to or included with
such prospectus, and, if so directed by the Company, such Rightsholder
will deliver to the Company (at the expense of the Company) all
copies, other than permanent file copies then in the possession of
such Rightsholder, of the current prospectus covering such
Registerable Securities at the time of receipt of such notice; the
Company shall have the right to demand that such Rightsholder or other
holder verify its agreement to the provisions of this Paragraph 10(d)
(ii)(B) in any Demand Request, Tag-Along Request or Holder Notice of
the Rightsholder or in a separate document executed by the
Rightsholder.
(e) Registration Expenses. All expenses incident to the performance
of or compliance with this Agreement by the Company, including, without
imitation, all registration and filing fees of the Commission, National
Association of Securities Dealers, Inc. and other agencies, fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registerable Securities), rating agency fees, printing expenses, messenger
and delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing, if any, of the Registerable Securities on any securities exchange and
fees and disbursements of counsel for the Company and the Company's
independent certified public accountants (including the expenses of any
special audit or "cold comfort" letters required by or incidental to such
performance), Securities Act or other liability insurance (if the Company
elects to obtain such insurance), the fees and expenses of any special experts
retained by the Company in connection with such registration and the fees and
expenses of any other person retained by the Company (but not including any
underwriting discounts or commissions attributable to the sale of
Registerable Securities or other out-of-pocket expenses of the Rightsholders,
or the agents who act on their behalf, unless reimbursement is specifically
approved by the Company) will be borne by the Company. All such
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<PAGE>
expenses are herein referred to as "Registration Expenses." Notwithstanding
the foregoing, the Company shall not be required to pay for any Registration
Expenses of any Demand Registration if such Demand Request is subsequently
withdrawn at the request of the holders of a majority of the Registerable
Securities included in such Demand Registration (in which case all Rightsholders
which requested the withdrawal of the Demand Registration shall bear such
expenses pro rata); provided that, if, at the time of such withdrawal, such
Rightsholders have learned of a material adverse change in the condition,
business or prospects of the Company from that known to such Rightsholders at
the time of their Demand Request, such Rightsholders shall not be required to
pay any of such expenses. In either event, if such Rightsholders pay in full the
expenses of such withdrawn Demand Registration, such Rightsholders shall retain
the right to one Demand Registration.
(f) Indemnification: Contribution.
(i) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Rightsholder, its officers and directors and each person who controls such
Rightsholder (within the meaning of the Securities Act), if any, and any
agent thereof against all losses, claims, damages, liabilities and expenses
incurred by such party pursuant to any actual or threatened suit, action,
proceeding or investigation (including reasonable attorney's fees and
expenses of investigation) arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in
the light of the circumstances under which they were made) not misleading,
except insofar as the same arise out of or are based upon, any such untrue
statement or omission based upon information with respect to such
Rightsholder furnished in writing to the Company by such Rightsholder
expressly for use therein.
(ii) Indemnification by Rightsholder. In connection with
any registration statement in which a Rightsholder is participating, each
such Rightsholder will be required to furnish to the Company in writing
such information with respect to such Rightsholder as the Company
reasonably requests for use in connection with any such registration
statement or prospectus, and each Rightsholder agrees to the extent it is
such a holder of Registerable Securities included in such registration
statement, and each other such holder of Registerable Securities included
in such Registration Statement will be required to agree, to indemnify,
to the full extent permitted by law, the Company, the directors and
officers of the Company and each person who controls the Company (within
the meaning of the Securities Act) and any agent thereof, against any
losses, claims, damages, liabilities and expenses (including reasonable
attorney's fees and expenses of investigation incurred by such party
pursuant to any actual or threatened suit, action, proceeding or
investigation arising out of or based upon any untrue or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact necessary, to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they are made)
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is based upon information relating
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<PAGE>
to such Rightsholder or other holder furnished in writing to the Company
expressly for use therein.
(iii) Conduct of Indemnification Proceedings. Promptly
after receipt by an indemnified party under this Paragraph 10(f) of written
notice of the commencement of any action, proceeding, suit or investigation
or threat thereof made in writing for which such indemnified party may
claim indemnification or contribution pursuant to this Agreement, such
indemnified party shall notify in writing the indemnifying party of such
commencement or threat; but the omission so to notify the indemnifying
party shall not relieve the indemnifying party from any liability which the
indemnifying party may have to any indemnified party (A) hereunder, unless
the indemnifying party is actually prejudiced thereby, or (B) otherwise
than under this Paragraph 10(f). In case any such action, suit or
proceeding shall be brought against any indemnified party, and the
indemnified party shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein
and the indemnifying party shall assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party, and the obligation to pay
all expenses relating thereto. The indemnified party shall have the right
to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party has agreed to pay such fees and expenses, (B) the
indemnifying party shall have failed to assume the defense of such action,
suit or proceeding or to employ counsel reasonably satisfactory to the
indemnified party therein or to pay all expenses relating thereto or (C)
the named parties to any such action or proceeding (including any impleaded
parties) include both the indemnified party and the indemnifying party and
the indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to the indemnified party which are
different from or additional to those available to the indemnifying party
and which may result in a conflict between the indemnifying party and such
indemnified party (in which case, if the indemnified party notifies the
indemnifying party in writing that the indemnified party elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action or
proceeding on behalf of the indemnified party; it being understood,
however, that the indemnifying party shall not, in connection with any
one such action, suit or proceeding or separate but substantially similar
or related actions, suits or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys at any time
for the indemnified party, which firm shall be designated in writing by the
indemnified party).
(iv) Contribution. If the indemnification provided for in
this Paragraph 10(f) from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses (A) in such proportion as
is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other
-17-
<PAGE>
or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the relative fault of the
indemnifying party and indemnified party, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and the indemnified parties shall be determined by reference to, among
other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitation
set forth in Paragraph 10(f)(v), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Paragraph 10(f)(iv) were
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to in clauses (A) and (B) of the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(v) Limitation. Anything to the contrary contained in this
Paragraph 10(f) or in Paragraph 10(g) notwithstanding, no holder of
Registerable Securities shall be liable for indemnification and
contribution payments aggregating an amount in excess of the maximum amount
received by such holder in connection with any sale of Registerable
Securities as contemplated herein.
(g) Participation in Underwritten Registration. No Rightsholder may
participate in any underwritten registration hereunder unless such Rightsholder
(i) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange
Act and (ii) completes and executes all questionnaires, appropriate and limited
powers of attorney, escrow agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangement; provided, that all such documents shall be consistent with the
provisions of Paragraph 10(e) hereof.
11. MISCELLANEOUS.
This Warrant Certificate and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This certificate is deemed to have been delivered in the State of New
York and shall be construed and enforced in accordance with and governed by
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<PAGE>
the laws of such State. The headings in this Warrant Certificate are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
12. EXPIRATION.
Unless as hereinafter provided, the right to exercise these
Warrants shall expire at the Expiration Time.
Dated: January 8, 2000
VIZACOM INC.
By: /s/ Mark E. Leininger
Mark E. Leininger, President
ATTEST:
/s/ Marc E. Jaffe
Marc E. Jaffe, Secretary
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<PAGE>
EXERCISE FORM
Dated: ,
---------------- ----
TO: VIZACOM INC.:
The undersigned hereby irrevocably elects to exercise the within
Warrant, to the extent of purchasing _________________ shares of Common Stock,
and hereby makes payment of ____________ in payment of the actual Exercise Price
thereof.
-------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
-------------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
-------------------------------------------------------------
Address:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
--------------------------
Signature:
-------------------------------------------------------------
(Signature must conform in all respects to the name of the
Warrantholder as set forth on the face of this Warrant
Certificate.)
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<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED,
---------------------------------------------
(Please type or print in block letters)
hereby sells, assigns and transfers unto:
Name:
----------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
----------------------------------------------------------
Address:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
this Warrant Certificate and the Warrants represented by this Warrant
Certificate to the extent of ________________ Warrants and does hereby
irrevocably constitute and appoint __________________________ Attorney-in-Fact,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Dated:
----------------------
Signature:
----------------------------------------------------------
(Signature must conform in all respects to the name of
the Warrantholder as set forth on the face of this
Warrant Certificate.)
-21-
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES OF
COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
VOID AFTER 5:00 P.M. ON JANUARY 7, 2003
VIZACOM INC.
WARRANT CERTIFICATE
40,000 COMMON STOCK PURCHASE WARRANTS
Teaneck, New Jersey
Warrant Certificate No. AA-4 January 8, 2000
THIS IS TO CERTIFY THAT, for value received, Arel AMG, Inc., a
Delaware corporation or registered assigns (the "Warrantholder") permitted by
the terms of this Warrant Certificate, is the registered owner of the number of
Common Stock Purchase Warrants (each, a "Warrant") set forth above, each Warrant
entitling the owner thereof to purchase from Vizacom Inc., a Delaware
Corporation (the "Company"), at any time commencing on or after the date on
which the Company or an affiliate of the Company consummates three acquisitions
of companies located in Europe that was introduced to the Company by Schlomo
Lazar or the Warrantholder (the "Commencement Time") on or prior to 5:00 P.M.,
New York City time, on January 7, 2003 (the "Expiration Time"), one duly
authorized, validly issued, fully paid and nonassessable share (each, a "Warrant
Share") of the common stock, par value $.001 per share ("Common Stock"), of the
Company, at a purchase price of $3.00 per share (the "Purchase Price"), all
subject to the terms and conditions contained herein. The number of Warrants
evidenced by this Warrant Certificate (and the number and kind of securities
which may be purchased upon exercise hereof) set forth above, and the Purchase
Price per share set forth above, are as of the date hereof. As provided herein,
the Purchase Price and the number of shares of Common Stock or other securities
which may be purchased upon the exercise of the Warrants evidenced by this
Warrant Certificate are, upon the happening of certain events, subject to
modification and adjustment.
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This Warrant Certificate, together with any warrant certificate(s)
issued in replacement or substitution hereof (as provided for herein) evidencing
all or part of the Warrants evidenced hereby, are sometimes collectively
referred to herein as the "Warrant Certificates."
The rights of the registered holder of this Warrant Certificate shall
be subject to the following further terms and conditions:
1. EXERCISE OF WARRANTS.
(a) The Warrants may be exercised, in whole or in part, on or prior
to the Expiration Time by surrendering this Warrant Certificate, with the
purchase form provided for herein duly executed by the Warrantholder or by the
Warrantholder's duly authorized attorney-in-fact, at the principal office of
the Company, presently located at Glenpointe Centre East, 300 Frank W. Burr
Boulevard - 7th Floor, Teaneck, New Jersey 07666, or at such other office or
agency in the United States as the Company may designate by notice in
writing to the Warrantholder (in either event, the "Company Offices"),
accompanied by payment in full, either in the form of cash, bank cashier's check
or certified check payable to the order of the Company, of the Exercise Price
payable in respect of the Warrants being exercised. If fewer than all of the
Warrants are exercised, the Company shall, upon each exercise prior to the
Expiration Time, execute and deliver to the Warrantholder a new Warrant
Certificate (dated as of the date hereof) evidencing the balance of the
Warrants that remain exercisable.
(b) On the date of exercise of the Warrants, the Warrantholder
exercising same shall be deemed to have become the holder of record for all
purposes of the Warrant Shares to which the exercise relates.
(c) As soon as practicable, but not in excess of ten days, after the
exercise of all or part of the Warrants evidenced by this Warrant Certificate,
the Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the
Warrantholder a certificate or certificates evidencing the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares to which
the Warrantholder shall be entitled upon such exercise.
(d) No certificates for fractional Warrant Shares shall be issued upon
the exercise of any of the Warrants but, in lieu thereof, the Company shall,
upon exercise of all the Warrants, round up any fractional Warrant Share to the
nearest whole share of Common Stock.
2. ISSUANCE OF COMMON STOCK; RESERVATION OF SHARES.
(a) The Company covenants and agrees that all Warrant Shares which may
be issued upon the exercise of all or part of the Warrants will, upon issuance
in accordance with the terms hereof, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
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(b) The Company further covenants and agrees that if any shares of
Common Stock to be reserved for the purpose of the issuance of Warrant Shares
upon the exercise of Warrants require registration with, or approval of, any
governmental authority under any federal or state law before such shares may
be validly issued or delivered upon exercise, then the Company will promptly
use its best efforts to effect such registration or obtain such approval, as the
case may be.
3. ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND CHARACTER OF WARRANT SHARES, AND
NUMBER OF WARRANTS.
The Exercise Price the number and kind of securities purchasable upon
the exercise of each Warrant shall be subject to adjustment from time to time
upon the happening of the events enumerated in this Section 3.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case the
Company shall at any time on or before the Expiration Time:
(i) pay a dividend in shares of Common Stock [or other stock
of the Company] or make a distribution in shares of Common Stock or such
other stock to holders of all its outstanding shares of Common Stock;
(ii) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares;
(iii) combine the outstanding shares of Common Stock into a
smaller number of shares of Common Stock; or
(iv) issue by reclassification of its shares of Common Stock
other securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing corporation);
then the number and kind of Warrant Shares purchasable upon exercise of
each Warrant outstanding immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of shares of
Common Stock or other securities of the Company which the Warrantholder would
have owned or have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised in full immediately prior
to the earlier of the happening of such event or any record date in respect
thereto. In the event of any adjustment of the number of Warrant Shares
purchasable upon the exercise of each then outstanding Warrants pursuant to this
Paragraph 3(a), the Exercise Price shall be adjusted to be the amount resulting
from dividing the number of shares of Common Stock (including fractional shares
of Common Stock) covered by such Warrant immediately after such adjustment into
the total amount payable upon exercise of such Warrant in full immediately prior
to such adjustment. An adjustment made pursuant to this Paragraph 3(a) shall
become effective immediately after the effective date of such event retroactive
to the record date for any such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
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(b) EXTRAORDINARY DIVIDENDS. In case the Company shall at any time on
or before the Expiration Time fix a record date for the issuance of rights,
options, or warrants to all holders of its outstanding shares of Common Stock,
entitling them (for a period expiring within 45 days after such record date) to
subscribe for or purchase shares of Common Stock (or securities exchangeable for
or convertible into shares of Common Stock) at a price per share of Common Stock
(or having an exchange or conversion price per share of Common Stock, with
respect to a security exchangeable for or convertible into shares of Common
Stock) which is lower than the current Market Price per share of Common Stock
(as defined in Paragraph 3(d) below) on such record date, then the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, of which (i) the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial exchange or
conversion price of the exchangeable or convertible securities so to be offered)
would purchase at such current Market Price and (ii) the denominator shall be
the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock to be offered for subscription or
purchase (or into which the exchangeable or convertible securities so to be
offered are initially exchangeable or convertible). Such adjustment shall become
effective at the close of business on such record date; however, to the extent
that shares of Common Stock (or securities exchangeable for or convertible into
shares of Common Stock) are not delivered after the expiration of such rights,
options, or warrants, the Exercise Price shall be readjusted (but only with
respect to Warrants exercised after such expiration) to the Exercise Price which
would then be in effect had the adjustments made upon the issuance of such
rights, options, or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities exchangeable for or convertible
into shares of Common Stock) actually issued. In case any subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company and shall be described in a statement
mailed to the Warrantholder. Shares of Common Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation.
(c) EXTRAORDINARY DISTRIBUTIONS. In case the Company shall at any time
after the original date of issuance of the Warrants (the "Date of Issuance")
distribute to all holders of its shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) evidences of its indebtedness or assets
(excluding cash dividends and distributions payable out of consolidated net
income or earned surplus in accordance with Delaware law and dividends or
distributions payable in shares of stock described in Paragraph 3(a) above) or
rights, options, or warrants or exchangeable or convertible securities
containing the right to subscribe for or purchase shares of Common Stock (or
securities exchangeable for or convertible into shares of Common Stock), then
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for such distribution by a fraction, of
which (i) the numerator shall be the current Market Price per share of Common
Stock (as defined in Paragraph 3(d)) on such record date, less the fair market
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive, and described in a notice to the
Warrantholders) of the portion of the evidences of indebtedness or assets so to
be distributed or of such rights, options or warrants applicable to one share of
Common Stock
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and (ii) the denominator shall be such current Market Price per share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution retroactive to the
record date for such transaction.
(d) CURRENT MARKET PRICE DEFINED. For the purpose of any computation
under Paragraphs 3(b) and/or 3(c), the current Market Price per share of Common
Stock at any date shall be deemed to be the average daily Closing Price of the
shares of Common Stock for twenty consecutive trading days ending within fifteen
days before the date in question. The term "Closing Price" of the shares of
Common Stock for a day or days shall mean (i) if the shares of Common Stock are
listed or admitted for trading on a national securities exchange, the last
reported sales price regular way, or, in case no such reported sale takes place
on such day or days, the average of the reported closing bid and asked prices
regular way, in either case on the principal national securities exchange on
which the shares of the Common Stock are listed or admitted for trading, or
(ii) if the shares of Common Stock are not listed or admitted for trading on
a national securities exchange, (A) the last transaction price for the Common
Stock on The Nasdaq Stock Market ("Nasdaq") or, in the case no such reported
transaction takes place on such day or days, the average of the reported
closing bid and asked prices thereof quoted on Nasdaq, or (B) if the shares of
Common Stock are not quoted on Nasdaq, the average of the closing bid and asked
prices of the Common Stock as quoted on the Over-The-Counter Bulletin Board
maintained by the National Association of Securities Dealers, Inc. ( the
"Bulletin Board"), or (C) if the shares of Common Stock are not quoted on
Nasdaq nor on the Bulletin Board, the average of the closing bid and asked
prices of the common stock in the over-the-counter market, as reported by The
National Quotation Bureau, Inc., or an equivalent generally accepted reporting
service, or (iii) if on any such trading day or days the shares of Common
Stock are not quoted by any such organization, the fair market value of the
shares of Common Stock on such day or days, as determined in good faith by
the Board of Directors of the Company, shall be used.
(e) MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than five cents ($.05) per
share. Any adjustment of less than five cents ($.05) per share of any Exercise
Price shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, together with adjustment or adjustments so
carried forward, amounts to five cents ($.05) per share or more. However, upon
exercise of this Warrant Certificate, the Company shall make all necessary
adjustments (to the nearest cent) not theretofore made to the Exercise Price up
to and including the effective date upon which this Warrant Certificate is
exercised.
(f) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price shall be
adjusted pursuant to this Section 3, the Company shall promptly deliver a
certificate signed by the President, a Vice President, the Chief Financial
Officer, Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company made any determination hereunder),
by first class mail postage prepaid to each Warrantholder.
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(g) CAPITAL REORGANIZATIONS AND OTHER RECLASSIFICATIONS. In case of
any capital reorganization of the Company, or of any reclassification of the
shares of Common Stock (other than a reclassification, subdivision or
combination of shares of Common Stock referred to in Paragraph 3(a)), or
in case of the consolidation of the Company with, or the merger of the Company
with, or merger of the Company into, any other corporation (other than a
reclassification of the shares of Common Stock referred to in Paragraph 3(a)
or a consolidation or merger which does not result in any reclassification
or change of the outstanding shares of Common Stock) or of the sale of the
properties and assets of the Company as, or substantially as, an entirety to any
other corporation or entity, each Warrant shall, after such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale, be exercisable, upon the terms and conditions specified in this
Warrant Certificate, for the kind, amount and number of shares or other
securities, assets, or cash to which a holder of the number of shares of Common
Stock purchasable (at the time of such capital reorganization, reclassification
of shares of Common Stock, consolidation, merger or sale) upon exercise
of such Warrant would have been entitled to receive upon such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale; and in any such case, if necessary, the provisions set forth
in this Section 3 with respect to the rights and interests thereafter of the
Warrantholder shall be appropriately adjusted so as to be applicable, as nearly
equivalent as possible, to any shares or other securities, assets, or cash
thereafter deliverable on the exercise of the Warrants. The Company shall not
effect any such consolidation, merger, or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation or
entity (if other than the Company) resulting from such consolidation or
merger or the corporation or entity purchasing such assets or other appropriate
corporation or entity shall assume, by written instrument, the obligation to
deliver to the Warrantholder such shares, securities, assets, or cash as, in
accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations hereunder. The subdivision or combination
of shares of Common Stock at any time outstanding into a greater or lesser
number of shares shall not be deemed to be a reclassification of the shares
of Common Stock for purposes of this Paragraph 3(e).
(h) ADJUSTMENTS TO OTHER SECURITIES. In the event that at any time,
as a result of an adjustment made pursuant to this Section 3, the Warrantholder
shall become entitled to purchase any shares or securities of the Company other
than the shares of Common Stock, thereafter the number of such other shares or
securities so purchasable upon exercise of each Warrant and the exercise price
for such shares or securities shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as possible to the provisions with
respect to the shares of Common Stock contained in Paragraphs 3(a) through (e),
inclusive.
(i) DEFERRAL OF ISSUANCE OF ADDITIONAL SHARES IN CERTAIN
CIRCUMSTANCES. In any case in which this Section 3 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the Warrantholder exercised after such record date the shares
of Common Stock, if any, issuable upon such exercise over and above the
Warrant Shares, if any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment; provided, however, that the
Company shall deliver as soon as practicable to such holder a due bill or other
appropriate instrument provided by the Company evidencing such holder's right
to receive such additional shares of Common Stock upon the occurrence of the
event requiring such adjustment.
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4. DEFINITION OF COMMON STOCK.
The Common Stock issuable upon exercise of the Warrants shall be the
Common Stock as constituted on the date hereof except as otherwise provided in
Section 3.
5. REPLACEMENT OF SECURITIES.
If this Warrant Certificate shall be lost, stolen, mutilated or
destroyed, the Company shall, on such terms as to indemnity or otherwise as the
Company may in its discretion reasonably impose, issue a new certificate of like
tenor or date representing in the aggregate the right to subscribe for and
purchase the number of shares of Common Stock which may be subscribed for and
purchased hereunder. Any such new certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
6. REGISTRATION.
This Warrant Certificate, as well as all other warrant certificates
representing Warrants shall be numbered and shall be registered in a register
(the "Warrant Register") maintained at the Company Offices as they are issued.
The Warrant Register shall list the name, address and Social Security or other
Federal Identification Number, if any, of all Warrantholders. The Company shall
be entitled to treat the Warrantholder as set forth in the Warrant Register as
the owner in fact of the Warrants as set forth therein for all purposes and
shall not be bound to recognize any equitable or other claim to or interest in
such Warrants on the part of any other person, and shall not be liable for any
registration of transfer of Warrants that are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with such knowledge of such facts
that its participation therein amounts to bad faith.
7. TRANSFER.
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES
OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH
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SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
8. EXCHANGE OF WARRANT CERTIFICATES.
This Warrant Certificate may be exchanged for another certificate or
certificates entitling the Warrantholder thereof to purchase a like aggregate
number of Warrant Shares as this Warrant Certificate entitles such Warrantholder
to purchase. A Warrantholder desiring to so exchange this Warrant Certificate
shall make such request in writing delivered to the Company, and shall surrender
this Warrant Certificate therewith. Thereupon, the Company shall execute and
deliver to the person entitled thereto a new certificate or certificates, as the
case may be, as so requested.
9. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given when delivered in person, against written receipt
therefor, or two days after being sent, by registered or certified mail, postage
prepaid, return receipt requested, and, if to the Warrantholder, at such address
as is shown on the Warrant Register or as may otherwise may have been furnished
to the Company in writing in accordance with this Section 9 by the Warrantholder
and, if to the Company, at the Company Offices or such other address as the
Company shall give notice thereof to the Warrantholder in accordance with this
Section 9.
10. REGISTRATION RIGHTS.
(a) Defined Terms. As used in this Section 10, terms defined
elsewhere herein shall have their assigned meanings and each of the following
terms shall have the following meanings (such definitions to be applicable
to both the plural and singular of the terms defined):
(i) Registerable Securities. The term "Registerable
Securities" shall mean any of the Warrant Shares, including any shares of
Common Stock or other securities received in connection with any stock
split, stock divided, merger, reorganization, recapitalization,
reclassification or other distribution payable or issuable upon shares of
Common Stock. For the purposes of this Agreement, securities will cease to
be Registerable Securities when (A) a registration statement under the
Securities Act covering such Registerable Securities has been declared
effective and either (1) such Registerable Securities have been disposed of
pursuant to such effective registration statement or (2) (I) such
Registerable Securities remain covered by such effective Registration
Statement, (II) such Registerable Securities have been withdrawn from such
Registration Statement at the request or demand of the holder of such
Registerable Securities or (III) such registration statement has been
withdrawn at the request or demand of the holder of such Registerable
Securities, (B) such Registerable Securities are distributed to the public
pursuant to the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act, including, but not limited
to, Rules 144 and 144A promulgated under the Securities Act, or (C) such
Registerable Securities have been otherwise transferred and the Company, in
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accordance with applicable law and regulations, has delivered new
certificates or other evidences of ownership for such securities which are
not subject to any stop transfer order or other restriction on transfer.
(ii) Rightsholders. The term "Rightsholders" shall include
the Warrantholder, all successors and assigns of the Warrantholder, and all
transferees of Registerable Securities where such transfer affirmatively
includes the transfer and assignment of the rights of the transferor
Rightsholder under this Agreement with respect to the transferred
Registerable Securities; provided, however, the term "Rightsholders" shall
not include any person or entity who has sold, transferred or assigned all
of such person's or entity's Registerable Securities.
(iii) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Section 10 shall refer to this
Section 10 as a whole and not to any particular provision of this Section
10, and subsection, paragraph, clause, schedule and exhibit references are
to this Section 10 unless otherwise specified.
(b) Demand Registration.
(i) The Company hereby covenants and agrees to register
(the "Demand Registration"), under the Securities Act, all of the
Registerable Securities.
(ii) Number of Demand Registrations; Expenses. The holders
of Registerable Securities shall be entitled, in the aggregate, to one
Demand Registration, the Registration Expenses (as defined in Paragraph
10(e) hereof) of which, subject to the provisions of Paragraph 10(e), shall
be borne by the Company, but the Company shall not be responsible for the
payment of any underwriter's discount, commission or selling concession in
connection with any of the Registerable Securities. The Company shall not
be deemed to have effected a Demand Registration unless and until such
Demand Registration is declared effective.
(iii) Approval of Underwriter by the Company. If the Demand
Registration is to involve an underwritten offering, the managing
underwriter(s) and each selling agent selected by those Rightsholders
participating in each such underwritten offering shall be Subject to the
written approval of the Company, which approval may not be unreasonably
withheld.
(vi) "Initiating Holders" Defined. For purposes of this
Agreement, the term "Initiating Holders" shall mean, on any given date,
those Rightsholders holding Registerable Securities which would aggregate
50% or more of the total Registerable Securities that would be outstanding
on such date.
(c) Piggy-Back Registration.
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(i) If, at any time on or after the date on which this
warrant certificate has been issued and on or prior to two years after the
Expiration Time, the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company or any
other party of any class of equity security similar to any Registerable
Securities (other than a registration statement on Form S-4 or S-8 or any
successor form or a registration statement filed solely in connection with
an exchange offer, a business combination transaction or an offering of
securities solely to the existing stockholders or employees of the
Company), then the Company, on each such occasion, shall give written
notice (each, a "Company Piggy-Back Notice") of such proposed filing to
all of the Rightsholders owning Registerable Securities at least 20 days
before the anticipated filing date of such registration statement, and
such Company Piggy-Back Notice also shall be required to offer to such
Rightsholders the opportunity to register such aggregate number of
Registerable Securities as each such Rightsholder may request. Each such
Rightsholder shall have the right, exercisable for the ten days immediately
following the giving of the Company Piggy-Back Notice, to request, by
written notice (each, a "Holder Notice") to the Company, the inclusion
of all or any portion of the Registerable Securities of such
Rightsholders in such registration statement. The Company shall use
reasonable efforts to cause the managing underwriter(s) of a proposed
underwritten offering to permit the inclusion of the Registerable
Securities which were the subject of all Holder Notices in such
underwritten offering on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding anything
to the contrary contained in this Paragraph 10(c)(i), if the managing
underwriter(s) of such underwritten offering (or, in the case of an
offering not being underwritten, the Company) delivers a written opinion
(or, in the case of the Company, a resolution of its Board of Directors
certified by the President or Secretary of the Company) to the
Rightsholders of Registerable Securities which were the subject of all
Holder Notices that the total amount and kind of securities which they, the
Company and any other person Intend to include in such offering is such as
to materially and adversely affect the success of such offering, then the
amount of securities to be offered for the accounts of such Rightsholders
and persons other than the Company shall be eliminated or reduced pro rata
(based on the amount of securities owned by such Rightsholders and other
persons which carry registration rights) to the extent necessary to reduce
the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter(s) in its written opinion
(or the Board of Directors in its resolution).
(ii) Number of Piggy-Back Registrations; Expenses. The
obligations of the Company under this Paragraph 10(c) shall be unlimited
with respect to each Rightsholder. Subject to the provisions of Paragraph
10(e) hereof, the Company will pay all Registration Expenses in connection
with any registration of Registerable Securities effected pursuant to this
Paragraph 10(c), but the Company shall not be responsible for the payment
of any underwriter's discount, commission or selling concession in
connection therewith.
(iii) Withdrawal or Suspension of Registration Statement.
Notwithstanding anything contained to the contrary in this Paragraph 10(c),
the Company shall have the absolute right, whether before or after the
giving of a Company Piggy-Back Notice or Holder Notice, to determine not to
file a registration statement to which the
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Rightsholders shall have the right to include their Registerable Securities
therein pursuant to this Paragraph 10(c), to withdraw such registration
statement or to delay or suspend pursuing the effectiveness of such
registration statement. In the event of such a determination after the
giving of a Company Piggy-Back Notice, the Company shall give notice
of such determination to all Rightsholders and, thereupon, (A) in the
case of a determination not to register or to withdraw such registration
statement, the Company shall be relieved of its obligation under this
Paragraph 10(c) to register any of the Registerable Securities in
connection with such registration and (B) in the case of a determination to
delay the registration, the Company shall be permitted to delay or suspend
the registration of Registerable Securities pursuant to this Paragraph
10(c) for the same period as the delay in the registration of such other
securities. No registration effected under this Paragraph 10(c) shall
relieve the Company of its obligation to effect any registration upon
demand otherwise granted to a Rightsholder under Paragraph 10(b)
hereof or any other agreement with the Company.
(d) Registration Procedures.
(i) Obligations of the Company. The Company will, in connection
with any registration pursuant to Paragraph 10(b) or (c) hereof, as
expeditiously as possible:
(A) prepare and file with the Commission a registration
statement under the Securities Act on any appropriate form chosen by
the Company, in its sole discretion, which shall be available for the
sale of all Registerable Securities in accordance with the intended
method(s) of distribution thereof set forth in all applicable Demand
Requests, Tag-Along Requests and Holder Notices, and use its
commercially reasonable best efforts to cause such registration
statement to become effective as soon thereafter as reasonably
practicable; provided, that, at least five business days before filing
with the Commission of such registration statement, the Company shall
furnish to each Rightsholder whose Registerable Securities are
included therein draft copies of such registration statement,
including all exhibits thereto and documents incorporated by reference
therein, and, upon the reasonable request of any such Rightsholder,
shall continue to provide drafts of such registration statement until
filed, and, after such filing, the Company shall, as diligently as
practicable, provide to each such Rightsholders such number of copies
of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus), all exhibits thereto and documents
incorporated by reference therein and such other documents as such
Rightsholder may reasonably request in order to facilitate the
disposition of the Registerable Securities owned by such Rightsholder
and included in such registration statement; provided, further, the
Company shall modify or amend the registration statement as it relates
to such Rightsholder as reasonably requested by such Rightsholder on a
timely basis, and shall reasonably consider other changes to the
registration statement (but not including any exhibit or document
incorporated therein by reference) reasonably requested by such
Rightsholder on a timely basis, in light of the requirements of the
Securities Act and any other applicable laws and
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<PAGE>
regulations; and provided, further, that the obligation of the
Company to effect such registration and/or cause such registration
statement to become effective, may be postponed for (1) such
period of time when the financial statements of the Company required
to be included in such registration statement are not available (due
solely to the fact that such financial statements have not been
prepared in the regular course of business of the Company) or (2)
any other bona fide corporate purpose, but then only for a period not
to exceed 90 days;
(B) prepare and file with the Commission such
amendments and post-effective amendments to a registration statement
as may be necessary to keep such registration statement effective for
up to nine months; and cause the related prospectus to be supplemented
by any required prospectus supplement, and as so supplemented to be
filed to the extent required pursuant to Rule 424 promulgated under
the Securities Act, during such nine-month period; and otherwise
comply with the provisions of the Securities Act with respect to the
disposition of all Registerable Securities covered by such
registration statement during the applicable period in accordance with
the intended method(s) of disposition of such Registerable Securities
set forth in such registration statement, prospectus or supplement to
such prospectus;
(C) notify the Rightsholders whose Registerable
Securities are included in such registration statement and the
managing underwriter(s), if any, of an underwritten offering of any of
the Registerable Securities included in such registration statement,
and confirm such advice in writing, (1) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and,
with respect to a registration statement or any post-effective
amendment, when the same has become effective, (2) of any request by
the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (3) of
the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for that purpose, (4) if at any time the representations
and warranties of the Company contemplated by clause (1) of Paragraph
10(d)(i)(J) hereof cease to be true and correct, (5) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of any of the Registerable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event which makes any
statement made in the registration statement, the prospectus or any
document incorporated therein by reference untrue or which requires
the making of any changes in the registration statement or prospectus
so that such registration statement, prospectus or document
incorporated by reference will not contain any untrue statement of
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(D) make reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of such
registration statement at the earliest possible moment and to prevent
the entry of such an order;
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<PAGE>
(E) use reasonable efforts to register or qualify
the Registerable Securities included in such registration statement
under such other securities or blue sky laws of such jurisdictions as
any Rightsholder whose Registerable Securities are included in such
registration statement reasonably requests in writing and do any and
all other acts and things which may be necessary or advisable to
enable such Rightsholder to consummate the disposition in such
jurisdictions of such Registerable Securities; provided, that the
Company will not be required to (1) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this Paragraph 10(d)(i)(E), (2) subject itself to
taxation in any such jurisdiction or (3) take any action which would
subject it to general service of process in any such jurisdiction;
(F) make available for inspection by each
Rightsholder whose Registerable Securities are included in such
registration, any underwriter(s) participating in any disposition
pursuant to such registration statement, and any representative, agent
or employee of or attorney or accountant retained by any such
Rightsholder or underwriter(s) (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility (or establish a due diligence defense), and cause the
officers, directors and employees of the Company to supply all
information reasonably requested by any such Inspector in connection
with such registration statement; provided, that records which the
Company determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors, unless (1) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction or
(2) the disclosure of such Records is required by any applicable law
or regulation or any governmental regulatory body with jurisdiction
over such Rightsholder or underwriter; provided, further, that such
Rightsholder or underwriter(s) agree that such Rightsholder or
underwriter(s) will, upon learning the disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(G) cooperate with the Rightsholder whose
Registerable Securities are included in such registration statement
and the managing underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Registerable
Securities to be sold thereunder, not bearing any restrictive legends,
and enable such Registerable Securities to be in such denominations
and registered in such names as such Rightsholder or any managing
underwriter(s) may reasonably request at least two business days prior
to any sale of Registerable Securities;
(H) comply with all applicable rules and
regulations of the Commission and promptly make generally available to
its security holders an earnings statement covering a period of twelve
months commencing, (1) in an
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underwritten offering, at the end of any fiscal quarter in which
Registerable Securities are sold to underwriter(s), or (2) in a
non-underwritten offering, with the first month of the Company's
first fiscal quarter beginning after the effective date of such
registration statement, which earnings statement in each case
shall satisfy the provisions of Section 11(a) of the Securities Act;
(I) provide a CUSIP number for all Registerable
Securities not later than the effective date of the registration
statement relating to the first public offering of Registerable
Securities of the Company pursuant hereto;
(J) enter into such customary agreements
(including an underwriting agreement in customary form) and take all
such other actions reasonably requested by the Rightsholders holding a
majority of the Registerable Securities included in such registration
statement or the managing underwriter(s) in order to expedite and
facilitate the disposition of such Registerable Securities and in such
connection, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration,
(1) make such representations and warranties, if any, to the holders
of such Registerable Securities and any underwriter(s) with respect to
the registration statement, prospectus and documents incorporated by
reference, if any, in form, substance and scope as are customarily
made by issuers to underwriter(s) in underwritten offerings and
confirm the same if and when requested, (2) obtain opinions of counsel
to the Company and updates thereof addressed to each such Rightsholder
and the underwriter(s), if any, with respect to the registration
statement, prospectus and documents incorporated by reference, if any,
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Rightsholders and underwriter(s), (3) obtain a "cold
comfort" letter and updates thereof from the Company's independent
certified public accountants addressed to such Rightsholders and to
the underwriter(s), if any, which letters shall be in customary form
and cover matters of the type customarily covered in "cold comfort"
letters by accountants in connection with underwritten offerings, and
(4) deliver such documents and certificates as may be reasonably
requested by the Rightsholders holding a majority of such Registerable
Securities and managing underwriter(s), if any, to evidence compliance
with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; each such action
required by this Paragraph 10(d)(i)(J) shall be done at each closing
under such underwriting or similar agreement or as and to the extent
required thereunder; and
(K) if requested by the holders of a majority of
the Registerable Securities included in such registration statement,
use its best efforts to cause all Registerable Securities which are
included in such registration statement to be listed, subject to
notice of issuance, by the date of the first sale of such Registerable
Securities pursuant to such registration statement, on each securities
exchange, if any, on which securities similar to the Registered
Securities are listed.
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<PAGE>
(ii) Obligations of Rightsholders. In connection with any
registration of Registerable Securities of a Rightsholder pursuant to
Paragraph 10(b) or (c) hereof:
(A) The Company may require that each Rightsholder
whose Registerable Securities are included in such registration
statement furnish to the Company such information regarding the
distribution of such Registerable Securities and such Rightsholder as
the Company may from time to time reasonably request in writing; and
(B) Each Rightsholder, upon receipt of any notice
from the Company of the happening of any event of the kind described
in clauses (2), (3), (5) and (6) of Paragraph 10(d)(i)(C) hereof,
shall forthwith discontinue disposition of Registerable Securities
pursuant to the registration statement covering such Registerable
Securities until such Rightsholder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (1) of
Paragraph 10(d)(i)(C) hereof, or until such Rightsholder is advised in
writing (the "Advice") by the Company that the use of the applicable
prospectus may be resumed, and until such Rightsholder has received
copies of any additional or supplemental filings which are
incorporated by reference in or to be attached to or included with
such prospectus, and, if so directed by the Company, such Rightsholder
will deliver to the Company (at the expense of the Company) all
copies, other than permanent file copies then in the possession of
such Rightsholder, of the current prospectus covering such
Registerable Securities at the time of receipt of such notice; the
Company shall have the right to demand that such Rightsholder or other
holder verify its agreement to the provisions of this Paragraph 10(d)
(ii)(B) in any Demand Request, Tag-Along Request or Holder Notice of
the Rightsholder or in a separate document executed by the
Rightsholder.
(e) Registration Expenses. All expenses incident to the performance
of or compliance with this Agreement by the Company, including, without
imitation, all registration and filing fees of the Commission, National
Association of Securities Dealers, Inc. and other agencies, fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registerable Securities), rating agency fees, printing expenses, messenger
and delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing, if any, of the Registerable Securities on any securities exchange and
fees and disbursements of counsel for the Company and the Company's
independent certified public accountants (including the expenses of any
special audit or "cold comfort" letters required by or incidental to such
performance), Securities Act or other liability insurance (if the Company
elects to obtain such insurance), the fees and expenses of any special experts
retained by the Company in connection with such registration and the fees and
expenses of any other person retained by the Company (but not including any
underwriting discounts or commissions attributable to the sale of
Registerable Securities or other out-of-pocket expenses of the Rightsholders,
or the agents who act on their behalf, unless reimbursement is specifically
approved by the Company) will be borne by the Company. All such
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<PAGE>
expenses are herein referred to as "Registration Expenses." Notwithstanding
the foregoing, the Company shall not be required to pay for any Registration
Expenses of any Demand Registration if such Demand Request is subsequently
withdrawn at the request of the holders of a majority of the Registerable
Securities included in such Demand Registration (in which case all Rightsholders
which requested the withdrawal of the Demand Registration shall bear such
expenses pro rata); provided that, if, at the time of such withdrawal, such
Rightsholders have learned of a material adverse change in the condition,
business or prospects of the Company from that known to such Rightsholders at
the time of their Demand Request, such Rightsholders shall not be required to
pay any of such expenses. In either event, if such Rightsholders pay in full the
expenses of such withdrawn Demand Registration, such Rightsholders shall retain
the right to one Demand Registration.
(f) Indemnification: Contribution.
(i) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Rightsholder, its officers and directors and each person who controls such
Rightsholder (within the meaning of the Securities Act), if any, and any
agent thereof against all losses, claims, damages, liabilities and expenses
incurred by such party pursuant to any actual or threatened suit, action,
proceeding or investigation (including reasonable attorney's fees and
expenses of investigation) arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in
the light of the circumstances under which they were made) not misleading,
except insofar as the same arise out of or are based upon, any such untrue
statement or omission based upon information with respect to such
Rightsholder furnished in writing to the Company by such Rightsholder
expressly for use therein.
(ii) Indemnification by Rightsholder. In connection with
any registration statement in which a Rightsholder is participating, each
such Rightsholder will be required to furnish to the Company in writing
such information with respect to such Rightsholder as the Company
reasonably requests for use in connection with any such registration
statement or prospectus, and each Rightsholder agrees to the extent it is
such a holder of Registerable Securities included in such registration
statement, and each other such holder of Registerable Securities included
in such Registration Statement will be required to agree, to indemnify,
to the full extent permitted by law, the Company, the directors and
officers of the Company and each person who controls the Company (within
the meaning of the Securities Act) and any agent thereof, against any
losses, claims, damages, liabilities and expenses (including reasonable
attorney's fees and expenses of investigation incurred by such party
pursuant to any actual or threatened suit, action, proceeding or
investigation arising out of or based upon any untrue or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact necessary, to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they are made)
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is based upon information relating
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<PAGE>
to such Rightsholder or other holder furnished in writing to the Company
expressly for use therein.
(iii) Conduct of Indemnification Proceedings. Promptly
after receipt by an indemnified party under this Paragraph 10(f) of written
notice of the commencement of any action, proceeding, suit or investigation
or threat thereof made in writing for which such indemnified party may
claim indemnification or contribution pursuant to this Agreement, such
indemnified party shall notify in writing the indemnifying party of such
commencement or threat; but the omission so to notify the indemnifying
party shall not relieve the indemnifying party from any liability which the
indemnifying party may have to any indemnified party (A) hereunder, unless
the indemnifying party is actually prejudiced thereby, or (B) otherwise
than under this Paragraph 10(f). In case any such action, suit or
proceeding shall be brought against any indemnified party, and the
indemnified party shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein
and the indemnifying party shall assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party, and the obligation to pay
all expenses relating thereto. The indemnified party shall have the right
to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party has agreed to pay such fees and expenses, (B) the
indemnifying party shall have failed to assume the defense of such action,
suit or proceeding or to employ counsel reasonably satisfactory to the
indemnified party therein or to pay all expenses relating thereto or (C)
the named parties to any such action or proceeding (including any impleaded
parties) include both the indemnified party and the indemnifying party and
the indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to the indemnified party which are
different from or additional to those available to the indemnifying party
and which may result in a conflict between the indemnifying party and such
indemnified party (in which case, if the indemnified party notifies the
indemnifying party in writing that the indemnified party elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action or
proceeding on behalf of the indemnified party; it being understood,
however, that the indemnifying party shall not, in connection with any
one such action, suit or proceeding or separate but substantially similar
or related actions, suits or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys at any time
for the indemnified party, which firm shall be designated in writing by the
indemnified party).
(iv) Contribution. If the indemnification provided for in
this Paragraph 10(f) from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses (A) in such proportion as
is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other
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<PAGE>
or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the relative fault of the
indemnifying party and indemnified party, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and the indemnified parties shall be determined by reference to, among
other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitation
set forth in Paragraph 10(f)(v), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Paragraph 10(f)(iv) were
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to in clauses (A) and (B) of the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(v) Limitation. Anything to the contrary contained in this
Paragraph 10(f) or in Paragraph 10(g) notwithstanding, no holder of
Registerable Securities shall be liable for indemnification and
contribution payments aggregating an amount in excess of the maximum amount
received by such holder in connection with any sale of Registerable
Securities as contemplated herein.
(g) Participation in Underwritten Registration. No Rightsholder may
participate in any underwritten registration hereunder unless such Rightsholder
(i) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange
Act and (ii) completes and executes all questionnaires, appropriate and limited
powers of attorney, escrow agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangement; provided, that all such documents shall be consistent with the
provisions of Paragraph 10(e) hereof.
11. MISCELLANEOUS.
This Warrant Certificate and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This certificate is deemed to have been delivered in the State of New
York and shall be construed and enforced in accordance with and governed by
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<PAGE>
the laws of such State. The headings in this Warrant Certificate are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
12. EXPIRATION.
Unless as hereinafter provided, the right to exercise these
Warrants shall expire at the Expiration Time.
Dated: January 8, 2000
VIZACOM INC.
By: /s/ Mark E. Leininger
Mark E. Leininger, President
ATTEST:
/s/ Marc E. Jaffe
Marc E. Jaffe, Secretary
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<PAGE>
EXERCISE FORM
Dated: ,
---------------- ----
TO: VIZACOM INC.:
The undersigned hereby irrevocably elects to exercise the within
Warrant, to the extent of purchasing _________________ shares of Common Stock,
and hereby makes payment of ____________ in payment of the actual Exercise Price
thereof.
-------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
-------------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
-------------------------------------------------------------
Address:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
--------------------------
Signature:
-------------------------------------------------------------
(Signature must conform in all respects to the name of the
Warrantholder as set forth on the face of this Warrant
Certificate.)
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<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED,
---------------------------------------------
(Please type or print in block letters)
hereby sells, assigns and transfers unto:
Name:
----------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
----------------------------------------------------------
Address:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
this Warrant Certificate and the Warrants represented by this Warrant
Certificate to the extent of ________________ Warrants and does hereby
irrevocably constitute and appoint __________________________ Attorney-in-Fact,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Dated:
----------------------
Signature:
----------------------------------------------------------
(Signature must conform in all respects to the name of
the Warrantholder as set forth on the face of this
Warrant Certificate.)
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NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES OF
COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
VOID AFTER 5:00 P.M. ON JANUARY 7, 2003
VIZACOM INC.
WARRANT CERTIFICATE
50,000 COMMON STOCK PURCHASE WARRANTS
Teaneck, New Jersey
Warrant Certificate No. AA-5 January 8, 2000
THIS IS TO CERTIFY THAT, for value received, Arel AMG, Inc., a
Delaware corporation or registered assigns (the "Warrantholder") permitted by
the terms of this Warrant Certificate, is the registered owner of the number of
Common Stock Purchase Warrants (each, a "Warrant") set forth above, each Warrant
entitling the owner thereof to purchase from Vizacom Inc., a Delaware
Corporation (the "Company"), at any time commencing on or after the date on
which the Company consummates a non-public offering of not less than $1 million
in gross proceeds to the Company from investors introduced to the Company by
Schlomo Lazar or the Warrantholder (the "Commencement Time"), and on or prior to
5:00 P.M., New York City time, on January 7, 2003 (the "Expiration Time"), one
duly authorized, validly issued, fully paid and nonassessable share (each, a
"Warrant Share") of the common stock, par value $.001 per share ("Common
Stock"), of the Company, at a purchase price of $3.00 per share (the "Purchase
Price"), all subject to the terms and conditions contained herein. The number of
Warrants evidenced by this Warrant Certificate (and the number and kind of
securities which may be purchased upon exercise hereof) set forth above, and the
Purchase Price per share set forth above, are as of the date hereof. As provided
herein, the Purchase Price and the number of shares of Common Stock or other
securities which may be purchased upon the exercise of the Warrants evidenced by
this Warrant Certificate are, upon the happening of certain events, subject to
modification and adjustment.
<PAGE>
This Warrant Certificate, together with any warrant certificate(s)
issued in replacement or substitution hereof (as provided for herein) evidencing
all or part of the Warrants evidenced hereby, are sometimes collectively
referred to herein as the "Warrant Certificates."
The rights of the registered holder of this Warrant Certificate shall
be subject to the following further terms and conditions:
1. EXERCISE OF WARRANTS.
(a) The Warrants may be exercised, in whole or in part, on or prior
to the Expiration Time by surrendering this Warrant Certificate, with the
purchase form provided for herein duly executed by the Warrantholder or by the
Warrantholder's duly authorized attorney-in-fact, at the principal office of
the Company, presently located at Glenpointe Centre East, 300 Frank W. Burr
Boulevard - 7th Floor, Teaneck, New Jersey 07666, or at such other office or
agency in the United States as the Company may designate by notice in
writing to the Warrantholder (in either event, the "Company Offices"),
accompanied by payment in full, either in the form of cash, bank cashier's check
or certified check payable to the order of the Company, of the Exercise Price
payable in respect of the Warrants being exercised. If fewer than all of the
Warrants are exercised, the Company shall, upon each exercise prior to the
Expiration Time, execute and deliver to the Warrantholder a new Warrant
Certificate (dated as of the date hereof) evidencing the balance of the
Warrants that remain exercisable.
(b) On the date of exercise of the Warrants, the Warrantholder
exercising same shall be deemed to have become the holder of record for all
purposes of the Warrant Shares to which the exercise relates.
(c) As soon as practicable, but not in excess of ten days, after the
exercise of all or part of the Warrants evidenced by this Warrant Certificate,
the Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the
Warrantholder a certificate or certificates evidencing the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares to which
the Warrantholder shall be entitled upon such exercise.
(d) No certificates for fractional Warrant Shares shall be issued upon
the exercise of any of the Warrants but, in lieu thereof, the Company shall,
upon exercise of all the Warrants, round up any fractional Warrant Share to the
nearest whole share of Common Stock.
2. ISSUANCE OF COMMON STOCK; RESERVATION OF SHARES.
(a) The Company covenants and agrees that all Warrant Shares which may
be issued upon the exercise of all or part of the Warrants will, upon issuance
in accordance with the terms hereof, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
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<PAGE>
(b) The Company further covenants and agrees that if any shares of
Common Stock to be reserved for the purpose of the issuance of Warrant Shares
upon the exercise of Warrants require registration with, or approval of, any
governmental authority under any federal or state law before such shares may
be validly issued or delivered upon exercise, then the Company will promptly
use its best efforts to effect such registration or obtain such approval, as the
case may be.
3. ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND CHARACTER OF WARRANT SHARES, AND
NUMBER OF WARRANTS.
The Exercise Price the number and kind of securities purchasable upon
the exercise of each Warrant shall be subject to adjustment from time to time
upon the happening of the events enumerated in this Section 3.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case the
Company shall at any time on or before the Expiration Time:
(i) pay a dividend in shares of Common Stock [or other stock
of the Company] or make a distribution in shares of Common Stock or such
other stock to holders of all its outstanding shares of Common Stock;
(ii) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares;
(iii) combine the outstanding shares of Common Stock into a
smaller number of shares of Common Stock; or
(iv) issue by reclassification of its shares of Common Stock
other securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing corporation);
then the number and kind of Warrant Shares purchasable upon exercise of
each Warrant outstanding immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of shares of
Common Stock or other securities of the Company which the Warrantholder would
have owned or have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised in full immediately prior
to the earlier of the happening of such event or any record date in respect
thereto. In the event of any adjustment of the number of Warrant Shares
purchasable upon the exercise of each then outstanding Warrants pursuant to this
Paragraph 3(a), the Exercise Price shall be adjusted to be the amount resulting
from dividing the number of shares of Common Stock (including fractional shares
of Common Stock) covered by such Warrant immediately after such adjustment into
the total amount payable upon exercise of such Warrant in full immediately prior
to such adjustment. An adjustment made pursuant to this Paragraph 3(a) shall
become effective immediately after the effective date of such event retroactive
to the record date for any such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
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(b) EXTRAORDINARY DIVIDENDS. In case the Company shall at any time on
or before the Expiration Time fix a record date for the issuance of rights,
options, or warrants to all holders of its outstanding shares of Common Stock,
entitling them (for a period expiring within 45 days after such record date) to
subscribe for or purchase shares of Common Stock (or securities exchangeable for
or convertible into shares of Common Stock) at a price per share of Common Stock
(or having an exchange or conversion price per share of Common Stock, with
respect to a security exchangeable for or convertible into shares of Common
Stock) which is lower than the current Market Price per share of Common Stock
(as defined in Paragraph 3(d) below) on such record date, then the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, of which (i) the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial exchange or
conversion price of the exchangeable or convertible securities so to be offered)
would purchase at such current Market Price and (ii) the denominator shall be
the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock to be offered for subscription or
purchase (or into which the exchangeable or convertible securities so to be
offered are initially exchangeable or convertible). Such adjustment shall become
effective at the close of business on such record date; however, to the extent
that shares of Common Stock (or securities exchangeable for or convertible into
shares of Common Stock) are not delivered after the expiration of such rights,
options, or warrants, the Exercise Price shall be readjusted (but only with
respect to Warrants exercised after such expiration) to the Exercise Price which
would then be in effect had the adjustments made upon the issuance of such
rights, options, or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities exchangeable for or convertible
into shares of Common Stock) actually issued. In case any subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company and shall be described in a statement
mailed to the Warrantholder. Shares of Common Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation.
(c) EXTRAORDINARY DISTRIBUTIONS. In case the Company shall at any time
after the original date of issuance of the Warrants (the "Date of Issuance")
distribute to all holders of its shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) evidences of its indebtedness or assets
(excluding cash dividends and distributions payable out of consolidated net
income or earned surplus in accordance with Delaware law and dividends or
distributions payable in shares of stock described in Paragraph 3(a) above) or
rights, options, or warrants or exchangeable or convertible securities
containing the right to subscribe for or purchase shares of Common Stock (or
securities exchangeable for or convertible into shares of Common Stock), then
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for such distribution by a fraction, of
which (i) the numerator shall be the current Market Price per share of Common
Stock (as defined in Paragraph 3(d)) on such record date, less the fair market
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive, and described in a notice to the
Warrantholders) of the portion of the evidences of indebtedness or assets so to
be distributed or of such rights, options or warrants applicable to one share of
Common Stock
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and (ii) the denominator shall be such current Market Price per share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution retroactive to the
record date for such transaction.
(d) CURRENT MARKET PRICE DEFINED. For the purpose of any computation
under Paragraphs 3(b) and/or 3(c), the current Market Price per share of Common
Stock at any date shall be deemed to be the average daily Closing Price of the
shares of Common Stock for twenty consecutive trading days ending within fifteen
days before the date in question. The term "Closing Price" of the shares of
Common Stock for a day or days shall mean (i) if the shares of Common Stock are
listed or admitted for trading on a national securities exchange, the last
reported sales price regular way, or, in case no such reported sale takes place
on such day or days, the average of the reported closing bid and asked prices
regular way, in either case on the principal national securities exchange on
which the shares of the Common Stock are listed or admitted for trading, or
(ii) if the shares of Common Stock are not listed or admitted for trading on
a national securities exchange, (A) the last transaction price for the Common
Stock on The Nasdaq Stock Market ("Nasdaq") or, in the case no such reported
transaction takes place on such day or days, the average of the reported
closing bid and asked prices thereof quoted on Nasdaq, or (B) if the shares of
Common Stock are not quoted on Nasdaq, the average of the closing bid and asked
prices of the Common Stock as quoted on the Over-The-Counter Bulletin Board
maintained by the National Association of Securities Dealers, Inc. ( the
"Bulletin Board"), or (C) if the shares of Common Stock are not quoted on
Nasdaq nor on the Bulletin Board, the average of the closing bid and asked
prices of the common stock in the over-the-counter market, as reported by The
National Quotation Bureau, Inc., or an equivalent generally accepted reporting
service, or (iii) if on any such trading day or days the shares of Common
Stock are not quoted by any such organization, the fair market value of the
shares of Common Stock on such day or days, as determined in good faith by
the Board of Directors of the Company, shall be used.
(e) MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than five cents ($.05) per
share. Any adjustment of less than five cents ($.05) per share of any Exercise
Price shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, together with adjustment or adjustments so
carried forward, amounts to five cents ($.05) per share or more. However, upon
exercise of this Warrant Certificate, the Company shall make all necessary
adjustments (to the nearest cent) not theretofore made to the Exercise Price up
to and including the effective date upon which this Warrant Certificate is
exercised.
(f) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price shall be
adjusted pursuant to this Section 3, the Company shall promptly deliver a
certificate signed by the President, a Vice President, the Chief Financial
Officer, Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company made any determination hereunder),
by first class mail postage prepaid to each Warrantholder.
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(g) CAPITAL REORGANIZATIONS AND OTHER RECLASSIFICATIONS. In case of
any capital reorganization of the Company, or of any reclassification of the
shares of Common Stock (other than a reclassification, subdivision or
combination of shares of Common Stock referred to in Paragraph 3(a)), or
in case of the consolidation of the Company with, or the merger of the Company
with, or merger of the Company into, any other corporation (other than a
reclassification of the shares of Common Stock referred to in Paragraph 3(a)
or a consolidation or merger which does not result in any reclassification
or change of the outstanding shares of Common Stock) or of the sale of the
properties and assets of the Company as, or substantially as, an entirety to any
other corporation or entity, each Warrant shall, after such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale, be exercisable, upon the terms and conditions specified in this
Warrant Certificate, for the kind, amount and number of shares or other
securities, assets, or cash to which a holder of the number of shares of Common
Stock purchasable (at the time of such capital reorganization, reclassification
of shares of Common Stock, consolidation, merger or sale) upon exercise
of such Warrant would have been entitled to receive upon such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale; and in any such case, if necessary, the provisions set forth
in this Section 3 with respect to the rights and interests thereafter of the
Warrantholder shall be appropriately adjusted so as to be applicable, as nearly
equivalent as possible, to any shares or other securities, assets, or cash
thereafter deliverable on the exercise of the Warrants. The Company shall not
effect any such consolidation, merger, or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation or
entity (if other than the Company) resulting from such consolidation or
merger or the corporation or entity purchasing such assets or other appropriate
corporation or entity shall assume, by written instrument, the obligation to
deliver to the Warrantholder such shares, securities, assets, or cash as, in
accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations hereunder. The subdivision or combination
of shares of Common Stock at any time outstanding into a greater or lesser
number of shares shall not be deemed to be a reclassification of the shares
of Common Stock for purposes of this Paragraph 3(e).
(h) ADJUSTMENTS TO OTHER SECURITIES. In the event that at any time,
as a result of an adjustment made pursuant to this Section 3, the Warrantholder
shall become entitled to purchase any shares or securities of the Company other
than the shares of Common Stock, thereafter the number of such other shares or
securities so purchasable upon exercise of each Warrant and the exercise price
for such shares or securities shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as possible to the provisions with
respect to the shares of Common Stock contained in Paragraphs 3(a) through (e),
inclusive.
(i) DEFERRAL OF ISSUANCE OF ADDITIONAL SHARES IN CERTAIN
CIRCUMSTANCES. In any case in which this Section 3 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the Warrantholder exercised after such record date the shares
of Common Stock, if any, issuable upon such exercise over and above the
Warrant Shares, if any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment; provided, however, that the
Company shall deliver as soon as practicable to such holder a due bill or other
appropriate instrument provided by the Company evidencing such holder's right
to receive such additional shares of Common Stock upon the occurrence of the
event requiring such adjustment.
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4. DEFINITION OF COMMON STOCK.
The Common Stock issuable upon exercise of the Warrants shall be the
Common Stock as constituted on the date hereof except as otherwise provided in
Section 3.
5. REPLACEMENT OF SECURITIES.
If this Warrant Certificate shall be lost, stolen, mutilated or
destroyed, the Company shall, on such terms as to indemnity or otherwise as the
Company may in its discretion reasonably impose, issue a new certificate of like
tenor or date representing in the aggregate the right to subscribe for and
purchase the number of shares of Common Stock which may be subscribed for and
purchased hereunder. Any such new certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
6. REGISTRATION.
This Warrant Certificate, as well as all other warrant certificates
representing Warrants shall be numbered and shall be registered in a register
(the "Warrant Register") maintained at the Company Offices as they are issued.
The Warrant Register shall list the name, address and Social Security or other
Federal Identification Number, if any, of all Warrantholders. The Company shall
be entitled to treat the Warrantholder as set forth in the Warrant Register as
the owner in fact of the Warrants as set forth therein for all purposes and
shall not be bound to recognize any equitable or other claim to or interest in
such Warrants on the part of any other person, and shall not be liable for any
registration of transfer of Warrants that are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with such knowledge of such facts
that its participation therein amounts to bad faith.
7. TRANSFER.
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES
OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH
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SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
8. EXCHANGE OF WARRANT CERTIFICATES.
This Warrant Certificate may be exchanged for another certificate or
certificates entitling the Warrantholder thereof to purchase a like aggregate
number of Warrant Shares as this Warrant Certificate entitles such Warrantholder
to purchase. A Warrantholder desiring to so exchange this Warrant Certificate
shall make such request in writing delivered to the Company, and shall surrender
this Warrant Certificate therewith. Thereupon, the Company shall execute and
deliver to the person entitled thereto a new certificate or certificates, as the
case may be, as so requested.
9. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given when delivered in person, against written receipt
therefor, or two days after being sent, by registered or certified mail, postage
prepaid, return receipt requested, and, if to the Warrantholder, at such address
as is shown on the Warrant Register or as may otherwise may have been furnished
to the Company in writing in accordance with this Section 9 by the Warrantholder
and, if to the Company, at the Company Offices or such other address as the
Company shall give notice thereof to the Warrantholder in accordance with this
Section 9.
10. REGISTRATION RIGHTS.
(a) Defined Terms. As used in this Section 10, terms defined
elsewhere herein shall have their assigned meanings and each of the following
terms shall have the following meanings (such definitions to be applicable
to both the plural and singular of the terms defined):
(i) Registerable Securities. The term "Registerable
Securities" shall mean any of the Warrant Shares, including any shares of
Common Stock or other securities received in connection with any stock
split, stock divided, merger, reorganization, recapitalization,
reclassification or other distribution payable or issuable upon shares of
Common Stock. For the purposes of this Agreement, securities will cease to
be Registerable Securities when (A) a registration statement under the
Securities Act covering such Registerable Securities has been declared
effective and either (1) such Registerable Securities have been disposed of
pursuant to such effective registration statement or (2) (I) such
Registerable Securities remain covered by such effective Registration
Statement, (II) such Registerable Securities have been withdrawn from such
Registration Statement at the request or demand of the holder of such
Registerable Securities or (III) such registration statement has been
withdrawn at the request or demand of the holder of such Registerable
Securities, (B) such Registerable Securities are distributed to the public
pursuant to the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act, including, but not limited
to, Rules 144 and 144A promulgated under the Securities Act, or (C) such
Registerable Securities have been otherwise transferred and the Company, in
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accordance with applicable law and regulations, has delivered new
certificates or other evidences of ownership for such securities which are
not subject to any stop transfer order or other restriction on transfer.
(ii) Rightsholders. The term "Rightsholders" shall include
the Warrantholder, all successors and assigns of the Warrantholder, and all
transferees of Registerable Securities where such transfer affirmatively
includes the transfer and assignment of the rights of the transferor
Rightsholder under this Agreement with respect to the transferred
Registerable Securities; provided, however, the term "Rightsholders" shall
not include any person or entity who has sold, transferred or assigned all
of such person's or entity's Registerable Securities.
(iii) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Section 10 shall refer to this
Section 10 as a whole and not to any particular provision of this Section
10, and subsection, paragraph, clause, schedule and exhibit references are
to this Section 10 unless otherwise specified.
(b) Demand Registration.
(i) The Company hereby covenants and agrees to register
(the "Demand Registration"), under the Securities Act, all of the
Registerable Securities.
(ii) Number of Demand Registrations; Expenses. The holders
of Registerable Securities shall be entitled, in the aggregate, to one
Demand Registration, the Registration Expenses (as defined in Paragraph
10(e) hereof) of which, subject to the provisions of Paragraph 10(e), shall
be borne by the Company, but the Company shall not be responsible for the
payment of any underwriter's discount, commission or selling concession in
connection with any of the Registerable Securities. The Company shall not
be deemed to have effected a Demand Registration unless and until such
Demand Registration is declared effective.
(iii) Approval of Underwriter by the Company. If the Demand
Registration is to involve an underwritten offering, the managing
underwriter(s) and each selling agent selected by those Rightsholders
participating in each such underwritten offering shall be Subject to the
written approval of the Company, which approval may not be unreasonably
withheld.
(vi) "Initiating Holders" Defined. For purposes of this
Agreement, the term "Initiating Holders" shall mean, on any given date,
those Rightsholders holding Registerable Securities which would aggregate
50% or more of the total Registerable Securities that would be outstanding
on such date.
(c) Piggy-Back Registration.
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(i) If, at any time on or after the date on which this
warrant certificate has been issued and on or prior to two years after the
Expiration Time, the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company or any
other party of any class of equity security similar to any Registerable
Securities (other than a registration statement on Form S-4 or S-8 or any
successor form or a registration statement filed solely in connection with
an exchange offer, a business combination transaction or an offering of
securities solely to the existing stockholders or employees of the
Company), then the Company, on each such occasion, shall give written
notice (each, a "Company Piggy-Back Notice") of such proposed filing to
all of the Rightsholders owning Registerable Securities at least 20 days
before the anticipated filing date of such registration statement, and
such Company Piggy-Back Notice also shall be required to offer to such
Rightsholders the opportunity to register such aggregate number of
Registerable Securities as each such Rightsholder may request. Each such
Rightsholder shall have the right, exercisable for the ten days immediately
following the giving of the Company Piggy-Back Notice, to request, by
written notice (each, a "Holder Notice") to the Company, the inclusion
of all or any portion of the Registerable Securities of such
Rightsholders in such registration statement. The Company shall use
reasonable efforts to cause the managing underwriter(s) of a proposed
underwritten offering to permit the inclusion of the Registerable
Securities which were the subject of all Holder Notices in such
underwritten offering on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding anything
to the contrary contained in this Paragraph 10(c)(i), if the managing
underwriter(s) of such underwritten offering (or, in the case of an
offering not being underwritten, the Company) delivers a written opinion
(or, in the case of the Company, a resolution of its Board of Directors
certified by the President or Secretary of the Company) to the
Rightsholders of Registerable Securities which were the subject of all
Holder Notices that the total amount and kind of securities which they, the
Company and any other person Intend to include in such offering is such as
to materially and adversely affect the success of such offering, then the
amount of securities to be offered for the accounts of such Rightsholders
and persons other than the Company shall be eliminated or reduced pro rata
(based on the amount of securities owned by such Rightsholders and other
persons which carry registration rights) to the extent necessary to reduce
the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter(s) in its written opinion
(or the Board of Directors in its resolution).
(ii) Number of Piggy-Back Registrations; Expenses. The
obligations of the Company under this Paragraph 10(c) shall be unlimited
with respect to each Rightsholder. Subject to the provisions of Paragraph
10(e) hereof, the Company will pay all Registration Expenses in connection
with any registration of Registerable Securities effected pursuant to this
Paragraph 10(c), but the Company shall not be responsible for the payment
of any underwriter's discount, commission or selling concession in
connection therewith.
(iii) Withdrawal or Suspension of Registration Statement.
Notwithstanding anything contained to the contrary in this Paragraph 10(c),
the Company shall have the absolute right, whether before or after the
giving of a Company Piggy-Back Notice or Holder Notice, to determine not to
file a registration statement to which the
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Rightsholders shall have the right to include their Registerable Securities
therein pursuant to this Paragraph 10(c), to withdraw such registration
statement or to delay or suspend pursuing the effectiveness of such
registration statement. In the event of such a determination after the
giving of a Company Piggy-Back Notice, the Company shall give notice
of such determination to all Rightsholders and, thereupon, (A) in the
case of a determination not to register or to withdraw such registration
statement, the Company shall be relieved of its obligation under this
Paragraph 10(c) to register any of the Registerable Securities in
connection with such registration and (B) in the case of a determination to
delay the registration, the Company shall be permitted to delay or suspend
the registration of Registerable Securities pursuant to this Paragraph
10(c) for the same period as the delay in the registration of such other
securities. No registration effected under this Paragraph 10(c) shall
relieve the Company of its obligation to effect any registration upon
demand otherwise granted to a Rightsholder under Paragraph 10(b)
hereof or any other agreement with the Company.
(d) Registration Procedures.
(i) Obligations of the Company. The Company will, in connection
with any registration pursuant to Paragraph 10(b) or (c) hereof, as
expeditiously as possible:
(A) prepare and file with the Commission a registration
statement under the Securities Act on any appropriate form chosen by
the Company, in its sole discretion, which shall be available for the
sale of all Registerable Securities in accordance with the intended
method(s) of distribution thereof set forth in all applicable Demand
Requests, Tag-Along Requests and Holder Notices, and use its
commercially reasonable best efforts to cause such registration
statement to become effective as soon thereafter as reasonably
practicable; provided, that, at least five business days before filing
with the Commission of such registration statement, the Company shall
furnish to each Rightsholder whose Registerable Securities are
included therein draft copies of such registration statement,
including all exhibits thereto and documents incorporated by reference
therein, and, upon the reasonable request of any such Rightsholder,
shall continue to provide drafts of such registration statement until
filed, and, after such filing, the Company shall, as diligently as
practicable, provide to each such Rightsholders such number of copies
of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus), all exhibits thereto and documents
incorporated by reference therein and such other documents as such
Rightsholder may reasonably request in order to facilitate the
disposition of the Registerable Securities owned by such Rightsholder
and included in such registration statement; provided, further, the
Company shall modify or amend the registration statement as it relates
to such Rightsholder as reasonably requested by such Rightsholder on a
timely basis, and shall reasonably consider other changes to the
registration statement (but not including any exhibit or document
incorporated therein by reference) reasonably requested by such
Rightsholder on a timely basis, in light of the requirements of the
Securities Act and any other applicable laws and
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regulations; and provided, further, that the obligation of the
Company to effect such registration and/or cause such registration
statement to become effective, may be postponed for (1) such
period of time when the financial statements of the Company required
to be included in such registration statement are not available (due
solely to the fact that such financial statements have not been
prepared in the regular course of business of the Company) or (2)
any other bona fide corporate purpose, but then only for a period not
to exceed 90 days;
(B) prepare and file with the Commission such
amendments and post-effective amendments to a registration statement
as may be necessary to keep such registration statement effective for
up to nine months; and cause the related prospectus to be supplemented
by any required prospectus supplement, and as so supplemented to be
filed to the extent required pursuant to Rule 424 promulgated under
the Securities Act, during such nine-month period; and otherwise
comply with the provisions of the Securities Act with respect to the
disposition of all Registerable Securities covered by such
registration statement during the applicable period in accordance with
the intended method(s) of disposition of such Registerable Securities
set forth in such registration statement, prospectus or supplement to
such prospectus;
(C) notify the Rightsholders whose Registerable
Securities are included in such registration statement and the
managing underwriter(s), if any, of an underwritten offering of any of
the Registerable Securities included in such registration statement,
and confirm such advice in writing, (1) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and,
with respect to a registration statement or any post-effective
amendment, when the same has become effective, (2) of any request by
the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (3) of
the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for that purpose, (4) if at any time the representations
and warranties of the Company contemplated by clause (1) of Paragraph
10(d)(i)(J) hereof cease to be true and correct, (5) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of any of the Registerable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event which makes any
statement made in the registration statement, the prospectus or any
document incorporated therein by reference untrue or which requires
the making of any changes in the registration statement or prospectus
so that such registration statement, prospectus or document
incorporated by reference will not contain any untrue statement of
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(D) make reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of such
registration statement at the earliest possible moment and to prevent
the entry of such an order;
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(E) use reasonable efforts to register or qualify
the Registerable Securities included in such registration statement
under such other securities or blue sky laws of such jurisdictions as
any Rightsholder whose Registerable Securities are included in such
registration statement reasonably requests in writing and do any and
all other acts and things which may be necessary or advisable to
enable such Rightsholder to consummate the disposition in such
jurisdictions of such Registerable Securities; provided, that the
Company will not be required to (1) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this Paragraph 10(d)(i)(E), (2) subject itself to
taxation in any such jurisdiction or (3) take any action which would
subject it to general service of process in any such jurisdiction;
(F) make available for inspection by each
Rightsholder whose Registerable Securities are included in such
registration, any underwriter(s) participating in any disposition
pursuant to such registration statement, and any representative, agent
or employee of or attorney or accountant retained by any such
Rightsholder or underwriter(s) (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility (or establish a due diligence defense), and cause the
officers, directors and employees of the Company to supply all
information reasonably requested by any such Inspector in connection
with such registration statement; provided, that records which the
Company determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors, unless (1) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction or
(2) the disclosure of such Records is required by any applicable law
or regulation or any governmental regulatory body with jurisdiction
over such Rightsholder or underwriter; provided, further, that such
Rightsholder or underwriter(s) agree that such Rightsholder or
underwriter(s) will, upon learning the disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(G) cooperate with the Rightsholder whose
Registerable Securities are included in such registration statement
and the managing underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Registerable
Securities to be sold thereunder, not bearing any restrictive legends,
and enable such Registerable Securities to be in such denominations
and registered in such names as such Rightsholder or any managing
underwriter(s) may reasonably request at least two business days prior
to any sale of Registerable Securities;
(H) comply with all applicable rules and
regulations of the Commission and promptly make generally available to
its security holders an earnings statement covering a period of twelve
months commencing, (1) in an
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underwritten offering, at the end of any fiscal quarter in which
Registerable Securities are sold to underwriter(s), or (2) in a
non-underwritten offering, with the first month of the Company's
first fiscal quarter beginning after the effective date of such
registration statement, which earnings statement in each case
shall satisfy the provisions of Section 11(a) of the Securities Act;
(I) provide a CUSIP number for all Registerable
Securities not later than the effective date of the registration
statement relating to the first public offering of Registerable
Securities of the Company pursuant hereto;
(J) enter into such customary agreements
(including an underwriting agreement in customary form) and take all
such other actions reasonably requested by the Rightsholders holding a
majority of the Registerable Securities included in such registration
statement or the managing underwriter(s) in order to expedite and
facilitate the disposition of such Registerable Securities and in such
connection, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration,
(1) make such representations and warranties, if any, to the holders
of such Registerable Securities and any underwriter(s) with respect to
the registration statement, prospectus and documents incorporated by
reference, if any, in form, substance and scope as are customarily
made by issuers to underwriter(s) in underwritten offerings and
confirm the same if and when requested, (2) obtain opinions of counsel
to the Company and updates thereof addressed to each such Rightsholder
and the underwriter(s), if any, with respect to the registration
statement, prospectus and documents incorporated by reference, if any,
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Rightsholders and underwriter(s), (3) obtain a "cold
comfort" letter and updates thereof from the Company's independent
certified public accountants addressed to such Rightsholders and to
the underwriter(s), if any, which letters shall be in customary form
and cover matters of the type customarily covered in "cold comfort"
letters by accountants in connection with underwritten offerings, and
(4) deliver such documents and certificates as may be reasonably
requested by the Rightsholders holding a majority of such Registerable
Securities and managing underwriter(s), if any, to evidence compliance
with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; each such action
required by this Paragraph 10(d)(i)(J) shall be done at each closing
under such underwriting or similar agreement or as and to the extent
required thereunder; and
(K) if requested by the holders of a majority of
the Registerable Securities included in such registration statement,
use its best efforts to cause all Registerable Securities which are
included in such registration statement to be listed, subject to
notice of issuance, by the date of the first sale of such Registerable
Securities pursuant to such registration statement, on each securities
exchange, if any, on which securities similar to the Registered
Securities are listed.
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<PAGE>
(ii) Obligations of Rightsholders. In connection with any
registration of Registerable Securities of a Rightsholder pursuant to
Paragraph 10(b) or (c) hereof:
(A) The Company may require that each Rightsholder
whose Registerable Securities are included in such registration
statement furnish to the Company such information regarding the
distribution of such Registerable Securities and such Rightsholder as
the Company may from time to time reasonably request in writing; and
(B) Each Rightsholder, upon receipt of any notice
from the Company of the happening of any event of the kind described
in clauses (2), (3), (5) and (6) of Paragraph 10(d)(i)(C) hereof,
shall forthwith discontinue disposition of Registerable Securities
pursuant to the registration statement covering such Registerable
Securities until such Rightsholder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (1) of
Paragraph 10(d)(i)(C) hereof, or until such Rightsholder is advised in
writing (the "Advice") by the Company that the use of the applicable
prospectus may be resumed, and until such Rightsholder has received
copies of any additional or supplemental filings which are
incorporated by reference in or to be attached to or included with
such prospectus, and, if so directed by the Company, such Rightsholder
will deliver to the Company (at the expense of the Company) all
copies, other than permanent file copies then in the possession of
such Rightsholder, of the current prospectus covering such
Registerable Securities at the time of receipt of such notice; the
Company shall have the right to demand that such Rightsholder or other
holder verify its agreement to the provisions of this Paragraph 10(d)
(ii)(B) in any Demand Request, Tag-Along Request or Holder Notice of
the Rightsholder or in a separate document executed by the
Rightsholder.
(e) Registration Expenses. All expenses incident to the performance
of or compliance with this Agreement by the Company, including, without
imitation, all registration and filing fees of the Commission, National
Association of Securities Dealers, Inc. and other agencies, fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registerable Securities), rating agency fees, printing expenses, messenger
and delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing, if any, of the Registerable Securities on any securities exchange and
fees and disbursements of counsel for the Company and the Company's
independent certified public accountants (including the expenses of any
special audit or "cold comfort" letters required by or incidental to such
performance), Securities Act or other liability insurance (if the Company
elects to obtain such insurance), the fees and expenses of any special experts
retained by the Company in connection with such registration and the fees and
expenses of any other person retained by the Company (but not including any
underwriting discounts or commissions attributable to the sale of
Registerable Securities or other out-of-pocket expenses of the Rightsholders,
or the agents who act on their behalf, unless reimbursement is specifically
approved by the Company) will be borne by the Company. All such
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<PAGE>
expenses are herein referred to as "Registration Expenses." Notwithstanding
the foregoing, the Company shall not be required to pay for any Registration
Expenses of any Demand Registration if such Demand Request is subsequently
withdrawn at the request of the holders of a majority of the Registerable
Securities included in such Demand Registration (in which case all Rightsholders
which requested the withdrawal of the Demand Registration shall bear such
expenses pro rata); provided that, if, at the time of such withdrawal, such
Rightsholders have learned of a material adverse change in the condition,
business or prospects of the Company from that known to such Rightsholders at
the time of their Demand Request, such Rightsholders shall not be required to
pay any of such expenses. In either event, if such Rightsholders pay in full the
expenses of such withdrawn Demand Registration, such Rightsholders shall retain
the right to one Demand Registration.
(f) Indemnification: Contribution.
(i) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Rightsholder, its officers and directors and each person who controls such
Rightsholder (within the meaning of the Securities Act), if any, and any
agent thereof against all losses, claims, damages, liabilities and expenses
incurred by such party pursuant to any actual or threatened suit, action,
proceeding or investigation (including reasonable attorney's fees and
expenses of investigation) arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in
the light of the circumstances under which they were made) not misleading,
except insofar as the same arise out of or are based upon, any such untrue
statement or omission based upon information with respect to such
Rightsholder furnished in writing to the Company by such Rightsholder
expressly for use therein.
(ii) Indemnification by Rightsholder. In connection with
any registration statement in which a Rightsholder is participating, each
such Rightsholder will be required to furnish to the Company in writing
such information with respect to such Rightsholder as the Company
reasonably requests for use in connection with any such registration
statement or prospectus, and each Rightsholder agrees to the extent it is
such a holder of Registerable Securities included in such registration
statement, and each other such holder of Registerable Securities included
in such Registration Statement will be required to agree, to indemnify,
to the full extent permitted by law, the Company, the directors and
officers of the Company and each person who controls the Company (within
the meaning of the Securities Act) and any agent thereof, against any
losses, claims, damages, liabilities and expenses (including reasonable
attorney's fees and expenses of investigation incurred by such party
pursuant to any actual or threatened suit, action, proceeding or
investigation arising out of or based upon any untrue or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact necessary, to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they are made)
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is based upon information relating
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<PAGE>
to such Rightsholder or other holder furnished in writing to the Company
expressly for use therein.
(iii) Conduct of Indemnification Proceedings. Promptly
after receipt by an indemnified party under this Paragraph 10(f) of written
notice of the commencement of any action, proceeding, suit or investigation
or threat thereof made in writing for which such indemnified party may
claim indemnification or contribution pursuant to this Agreement, such
indemnified party shall notify in writing the indemnifying party of such
commencement or threat; but the omission so to notify the indemnifying
party shall not relieve the indemnifying party from any liability which the
indemnifying party may have to any indemnified party (A) hereunder, unless
the indemnifying party is actually prejudiced thereby, or (B) otherwise
than under this Paragraph 10(f). In case any such action, suit or
proceeding shall be brought against any indemnified party, and the
indemnified party shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein
and the indemnifying party shall assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party, and the obligation to pay
all expenses relating thereto. The indemnified party shall have the right
to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party has agreed to pay such fees and expenses, (B) the
indemnifying party shall have failed to assume the defense of such action,
suit or proceeding or to employ counsel reasonably satisfactory to the
indemnified party therein or to pay all expenses relating thereto or (C)
the named parties to any such action or proceeding (including any impleaded
parties) include both the indemnified party and the indemnifying party and
the indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to the indemnified party which are
different from or additional to those available to the indemnifying party
and which may result in a conflict between the indemnifying party and such
indemnified party (in which case, if the indemnified party notifies the
indemnifying party in writing that the indemnified party elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action or
proceeding on behalf of the indemnified party; it being understood,
however, that the indemnifying party shall not, in connection with any
one such action, suit or proceeding or separate but substantially similar
or related actions, suits or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys at any time
for the indemnified party, which firm shall be designated in writing by the
indemnified party).
(iv) Contribution. If the indemnification provided for in
this Paragraph 10(f) from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses (A) in such proportion as
is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other
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<PAGE>
or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the relative fault of the
indemnifying party and indemnified party, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and the indemnified parties shall be determined by reference to, among
other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitation
set forth in Paragraph 10(f)(v), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Paragraph 10(f)(iv) were
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to in clauses (A) and (B) of the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(v) Limitation. Anything to the contrary contained in this
Paragraph 10(f) or in Paragraph 10(g) notwithstanding, no holder of
Registerable Securities shall be liable for indemnification and
contribution payments aggregating an amount in excess of the maximum amount
received by such holder in connection with any sale of Registerable
Securities as contemplated herein.
(g) Participation in Underwritten Registration. No Rightsholder may
participate in any underwritten registration hereunder unless such Rightsholder
(i) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange
Act and (ii) completes and executes all questionnaires, appropriate and limited
powers of attorney, escrow agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangement; provided, that all such documents shall be consistent with the
provisions of Paragraph 10(e) hereof.
11. MISCELLANEOUS.
This Warrant Certificate and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This certificate is deemed to have been delivered in the State of New
York and shall be construed and enforced in accordance with and governed by
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<PAGE>
the laws of such State. The headings in this Warrant Certificate are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
12. EXPIRATION.
Unless as hereinafter provided, the right to exercise these
Warrants shall expire at the Expiration Time.
Dated: January 8, 2000
VIZACOM INC.
By: /s/ Mark E. Leininger
Mark E. Leininger, President
ATTEST:
/s/ Marc E. Jaffe
Marc E. Jaffe, Secretary
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<PAGE>
EXERCISE FORM
Dated: ,
---------------- ----
TO: VIZACOM INC.:
The undersigned hereby irrevocably elects to exercise the within
Warrant, to the extent of purchasing _________________ shares of Common Stock,
and hereby makes payment of ____________ in payment of the actual Exercise Price
thereof.
-------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
-------------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
-------------------------------------------------------------
Address:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
--------------------------
Signature:
-------------------------------------------------------------
(Signature must conform in all respects to the name of the
Warrantholder as set forth on the face of this Warrant
Certificate.)
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<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED,
---------------------------------------------
(Please type or print in block letters)
hereby sells, assigns and transfers unto:
Name:
----------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
----------------------------------------------------------
Address:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
this Warrant Certificate and the Warrants represented by this Warrant
Certificate to the extent of ________________ Warrants and does hereby
irrevocably constitute and appoint __________________________ Attorney-in-Fact,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Dated:
----------------------
Signature:
----------------------------------------------------------
(Signature must conform in all respects to the name of
the Warrantholder as set forth on the face of this
Warrant Certificate.)
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NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES OF
COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
VOID AFTER 5:00 P.M. ON JANUARY 7, 2003
VIZACOM INC.
WARRANT CERTIFICATE
150,000 Common Stock Purchase Warrants
Teaneck, New Jersey
Warrant Certificate No. AA-6 January 8, 2000
THIS IS TO CERTIFY THAT, for value received, Arel AMG, Inc., a
Delaware corporation or registered assigns (the "Warrantholder") permitted by
the terms of this Warrant Certificate, is the registered owner of the number of
Common Stock Purchase Warrants (each, a "Warrant") set forth above, each Warrant
entitling the owner thereof to purchase from Vizacom Inc., a Delaware
Corporation (the "Company"), at any time commencing on or after the date on
which the Company consummates a non-public offering of not less than $20 million
in gross proceeds to the Company at least a majority of the investments therein
being made by investors introduced to the Company, by Schlomo Lazar or the
Warrantholder (the "Commencement Time"), and then in proportion to the
percentage of such funds that are provided by such investors on or prior to 5:00
P.M., New York City time, on January 7, 2003 (the "Expiration Time"), one duly
authorized, validly issued, fully paid and nonassessable share (each, a "Warrant
Share") of the common stock, par value $.001 per share ("Common Stock"), of the
Company, at a purchase price of $3.00 per share (the "Purchase Price"), all
subject to the terms and conditions contained herein. The number of Warrants
evidenced by this Warrant Certificate (and the number and kind of securities
which may be purchased upon exercise hereof) set forth above, and the Purchase
Price per share set forth above, are as of the date hereof. As provided herein,
the Purchase Price and the number of shares of Common Stock or other securities
which may be purchased upon the exercise of the Warrants evidenced by this
Warrant Certificate are, upon the happening of certain events, subject to
modification and adjustment.
<PAGE>
This Warrant Certificate, together with any warrant certificate(s)
issued in replacement or substitution hereof (as provided for herein) evidencing
all or part of the Warrants evidenced hereby, are sometimes collectively
referred to herein as the "Warrant Certificates."
The rights of the registered holder of this Warrant Certificate shall
be subject to the following further terms and conditions:
1. EXERCISE OF WARRANTS.
(a) The Warrants may be exercised, in whole or in part, on or prior
to the Expiration Time by surrendering this Warrant Certificate, with the
purchase form provided for herein duly executed by the Warrantholder or by the
Warrantholder's duly authorized attorney-in-fact, at the principal office of
the Company, presently located at Glenpointe Centre East, 300 Frank W. Burr
Boulevard - 7th Floor, Teaneck, New Jersey 07666, or at such other office or
agency in the United States as the Company may designate by notice in
writing to the Warrantholder (in either event, the "Company Offices"),
accompanied by payment in full, either in the form of cash, bank cashier's check
or certified check payable to the order of the Company, of the Exercise Price
payable in respect of the Warrants being exercised. If fewer than all of the
Warrants are exercised, the Company shall, upon each exercise prior to the
Expiration Time, execute and deliver to the Warrantholder a new Warrant
Certificate (dated as of the date hereof) evidencing the balance of the
Warrants that remain exercisable.
(b) On the date of exercise of the Warrants, the Warrantholder
exercising same shall be deemed to have become the holder of record for all
purposes of the Warrant Shares to which the exercise relates.
(c) As soon as practicable, but not in excess of ten days, after the
exercise of all or part of the Warrants evidenced by this Warrant Certificate,
the Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the
Warrantholder a certificate or certificates evidencing the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares to which
the Warrantholder shall be entitled upon such exercise.
(d) No certificates for fractional Warrant Shares shall be issued upon
the exercise of any of the Warrants but, in lieu thereof, the Company shall,
upon exercise of all the Warrants, round up any fractional Warrant Share to the
nearest whole share of Common Stock.
2. ISSUANCE OF COMMON STOCK; RESERVATION OF SHARES.
(a) The Company covenants and agrees that all Warrant Shares which may
be issued upon the exercise of all or part of the Warrants will, upon issuance
in accordance with the terms hereof, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
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<PAGE>
(b) The Company further covenants and agrees that if any shares of
Common Stock to be reserved for the purpose of the issuance of Warrant Shares
upon the exercise of Warrants require registration with, or approval of, any
governmental authority under any federal or state law before such shares may
be validly issued or delivered upon exercise, then the Company will promptly
use its best efforts to effect such registration or obtain such approval, as the
case may be.
3. ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND CHARACTER OF WARRANT SHARES, AND
NUMBER OF WARRANTS.
The Exercise Price the number and kind of securities purchasable upon
the exercise of each Warrant shall be subject to adjustment from time to time
upon the happening of the events enumerated in this Section 3.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case the
Company shall at any time on or before the Expiration Time:
(i) pay a dividend in shares of Common Stock [or other stock
of the Company] or make a distribution in shares of Common Stock or such
other stock to holders of all its outstanding shares of Common Stock;
(ii) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares;
(iii) combine the outstanding shares of Common Stock into a
smaller number of shares of Common Stock; or
(iv) issue by reclassification of its shares of Common Stock
other securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing corporation);
then the number and kind of Warrant Shares purchasable upon exercise of
each Warrant outstanding immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of shares of
Common Stock or other securities of the Company which the Warrantholder would
have owned or have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised in full immediately prior
to the earlier of the happening of such event or any record date in respect
thereto. In the event of any adjustment of the number of Warrant Shares
purchasable upon the exercise of each then outstanding Warrants pursuant to this
Paragraph 3(a), the Exercise Price shall be adjusted to be the amount resulting
from dividing the number of shares of Common Stock (including fractional shares
of Common Stock) covered by such Warrant immediately after such adjustment into
the total amount payable upon exercise of such Warrant in full immediately prior
to such adjustment. An adjustment made pursuant to this Paragraph 3(a) shall
become effective immediately after the effective date of such event retroactive
to the record date for any such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
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<PAGE>
(b) EXTRAORDINARY DIVIDENDS. In case the Company shall at any time on
or before the Expiration Time fix a record date for the issuance of rights,
options, or warrants to all holders of its outstanding shares of Common Stock,
entitling them (for a period expiring within 45 days after such record date) to
subscribe for or purchase shares of Common Stock (or securities exchangeable for
or convertible into shares of Common Stock) at a price per share of Common Stock
(or having an exchange or conversion price per share of Common Stock, with
respect to a security exchangeable for or convertible into shares of Common
Stock) which is lower than the current Market Price per share of Common Stock
(as defined in Paragraph 3(d) below) on such record date, then the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, of which (i) the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial exchange or
conversion price of the exchangeable or convertible securities so to be offered)
would purchase at such current Market Price and (ii) the denominator shall be
the number of shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock to be offered for subscription or
purchase (or into which the exchangeable or convertible securities so to be
offered are initially exchangeable or convertible). Such adjustment shall become
effective at the close of business on such record date; however, to the extent
that shares of Common Stock (or securities exchangeable for or convertible into
shares of Common Stock) are not delivered after the expiration of such rights,
options, or warrants, the Exercise Price shall be readjusted (but only with
respect to Warrants exercised after such expiration) to the Exercise Price which
would then be in effect had the adjustments made upon the issuance of such
rights, options, or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities exchangeable for or convertible
into shares of Common Stock) actually issued. In case any subscription price may
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company and shall be described in a statement
mailed to the Warrantholder. Shares of Common Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation.
(c) EXTRAORDINARY DISTRIBUTIONS. In case the Company shall at any time
after the original date of issuance of the Warrants (the "Date of Issuance")
distribute to all holders of its shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) evidences of its indebtedness or assets
(excluding cash dividends and distributions payable out of consolidated net
income or earned surplus in accordance with Delaware law and dividends or
distributions payable in shares of stock described in Paragraph 3(a) above) or
rights, options, or warrants or exchangeable or convertible securities
containing the right to subscribe for or purchase shares of Common Stock (or
securities exchangeable for or convertible into shares of Common Stock), then
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for such distribution by a fraction, of
which (i) the numerator shall be the current Market Price per share of Common
Stock (as defined in Paragraph 3(d)) on such record date, less the fair market
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive, and described in a notice to the
Warrantholders) of the portion of the evidences of indebtedness or assets so to
be distributed or of such rights, options or warrants applicable to one share of
Common Stock
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<PAGE>
and (ii) the denominator shall be such current Market Price per share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution retroactive to the
record date for such transaction.
(d) CURRENT MARKET PRICE DEFINED. For the purpose of any computation
under Paragraphs 3(b) and/or 3(c), the current Market Price per share of Common
Stock at any date shall be deemed to be the average daily Closing Price of the
shares of Common Stock for twenty consecutive trading days ending within fifteen
days before the date in question. The term "Closing Price" of the shares of
Common Stock for a day or days shall mean (i) if the shares of Common Stock are
listed or admitted for trading on a national securities exchange, the last
reported sales price regular way, or, in case no such reported sale takes place
on such day or days, the average of the reported closing bid and asked prices
regular way, in either case on the principal national securities exchange on
which the shares of the Common Stock are listed or admitted for trading, or
(ii) if the shares of Common Stock are not listed or admitted for trading on
a national securities exchange, (A) the last transaction price for the Common
Stock on The Nasdaq Stock Market ("Nasdaq") or, in the case no such reported
transaction takes place on such day or days, the average of the reported
closing bid and asked prices thereof quoted on Nasdaq, or (B) if the shares of
Common Stock are not quoted on Nasdaq, the average of the closing bid and asked
prices of the Common Stock as quoted on the Over-The-Counter Bulletin Board
maintained by the National Association of Securities Dealers, Inc. ( the
"Bulletin Board"), or (C) if the shares of Common Stock are not quoted on
Nasdaq nor on the Bulletin Board, the average of the closing bid and asked
prices of the common stock in the over-the-counter market, as reported by The
National Quotation Bureau, Inc., or an equivalent generally accepted reporting
service, or (iii) if on any such trading day or days the shares of Common
Stock are not quoted by any such organization, the fair market value of the
shares of Common Stock on such day or days, as determined in good faith by
the Board of Directors of the Company, shall be used.
(e) MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than five cents ($.05) per
share. Any adjustment of less than five cents ($.05) per share of any Exercise
Price shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, together with adjustment or adjustments so
carried forward, amounts to five cents ($.05) per share or more. However, upon
exercise of this Warrant Certificate, the Company shall make all necessary
adjustments (to the nearest cent) not theretofore made to the Exercise Price up
to and including the effective date upon which this Warrant Certificate is
exercised.
(f) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price shall be
adjusted pursuant to this Section 3, the Company shall promptly deliver a
certificate signed by the President, a Vice President, the Chief Financial
Officer, Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company made any determination hereunder),
by first class mail postage prepaid to each Warrantholder.
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(g) CAPITAL REORGANIZATIONS AND OTHER RECLASSIFICATIONS. In case of
any capital reorganization of the Company, or of any reclassification of the
shares of Common Stock (other than a reclassification, subdivision or
combination of shares of Common Stock referred to in Paragraph 3(a)), or
in case of the consolidation of the Company with, or the merger of the Company
with, or merger of the Company into, any other corporation (other than a
reclassification of the shares of Common Stock referred to in Paragraph 3(a)
or a consolidation or merger which does not result in any reclassification
or change of the outstanding shares of Common Stock) or of the sale of the
properties and assets of the Company as, or substantially as, an entirety to any
other corporation or entity, each Warrant shall, after such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale, be exercisable, upon the terms and conditions specified in this
Warrant Certificate, for the kind, amount and number of shares or other
securities, assets, or cash to which a holder of the number of shares of Common
Stock purchasable (at the time of such capital reorganization, reclassification
of shares of Common Stock, consolidation, merger or sale) upon exercise
of such Warrant would have been entitled to receive upon such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale; and in any such case, if necessary, the provisions set forth
in this Section 3 with respect to the rights and interests thereafter of the
Warrantholder shall be appropriately adjusted so as to be applicable, as nearly
equivalent as possible, to any shares or other securities, assets, or cash
thereafter deliverable on the exercise of the Warrants. The Company shall not
effect any such consolidation, merger, or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation or
entity (if other than the Company) resulting from such consolidation or
merger or the corporation or entity purchasing such assets or other appropriate
corporation or entity shall assume, by written instrument, the obligation to
deliver to the Warrantholder such shares, securities, assets, or cash as, in
accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations hereunder. The subdivision or combination
of shares of Common Stock at any time outstanding into a greater or lesser
number of shares shall not be deemed to be a reclassification of the shares
of Common Stock for purposes of this Paragraph 3(e).
(h) ADJUSTMENTS TO OTHER SECURITIES. In the event that at any time,
as a result of an adjustment made pursuant to this Section 3, the Warrantholder
shall become entitled to purchase any shares or securities of the Company other
than the shares of Common Stock, thereafter the number of such other shares or
securities so purchasable upon exercise of each Warrant and the exercise price
for such shares or securities shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as possible to the provisions with
respect to the shares of Common Stock contained in Paragraphs 3(a) through (e),
inclusive.
(i) DEFERRAL OF ISSUANCE OF ADDITIONAL SHARES IN CERTAIN
CIRCUMSTANCES. In any case in which this Section 3 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the Warrantholder exercised after such record date the shares
of Common Stock, if any, issuable upon such exercise over and above the
Warrant Shares, if any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment; provided, however, that the
Company shall deliver as soon as practicable to such holder a due bill or other
appropriate instrument provided by the Company evidencing such holder's right
to receive such additional shares of Common Stock upon the occurrence of the
event requiring such adjustment.
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4. DEFINITION OF COMMON STOCK.
The Common Stock issuable upon exercise of the Warrants shall be the
Common Stock as constituted on the date hereof except as otherwise provided in
Section 3.
5. REPLACEMENT OF SECURITIES.
If this Warrant Certificate shall be lost, stolen, mutilated or
destroyed, the Company shall, on such terms as to indemnity or otherwise as the
Company may in its discretion reasonably impose, issue a new certificate of like
tenor or date representing in the aggregate the right to subscribe for and
purchase the number of shares of Common Stock which may be subscribed for and
purchased hereunder. Any such new certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
6. REGISTRATION.
This Warrant Certificate, as well as all other warrant certificates
representing Warrants shall be numbered and shall be registered in a register
(the "Warrant Register") maintained at the Company Offices as they are issued.
The Warrant Register shall list the name, address and Social Security or other
Federal Identification Number, if any, of all Warrantholders. The Company shall
be entitled to treat the Warrantholder as set forth in the Warrant Register as
the owner in fact of the Warrants as set forth therein for all purposes and
shall not be bound to recognize any equitable or other claim to or interest in
such Warrants on the part of any other person, and shall not be liable for any
registration of transfer of Warrants that are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with such knowledge of such facts
that its participation therein amounts to bad faith.
7. TRANSFER.
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES
OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH
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SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
8. EXCHANGE OF WARRANT CERTIFICATES.
This Warrant Certificate may be exchanged for another certificate or
certificates entitling the Warrantholder thereof to purchase a like aggregate
number of Warrant Shares as this Warrant Certificate entitles such Warrantholder
to purchase. A Warrantholder desiring to so exchange this Warrant Certificate
shall make such request in writing delivered to the Company, and shall surrender
this Warrant Certificate therewith. Thereupon, the Company shall execute and
deliver to the person entitled thereto a new certificate or certificates, as the
case may be, as so requested.
9. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given when delivered in person, against written receipt
therefor, or two days after being sent, by registered or certified mail, postage
prepaid, return receipt requested, and, if to the Warrantholder, at such address
as is shown on the Warrant Register or as may otherwise may have been furnished
to the Company in writing in accordance with this Section 9 by the Warrantholder
and, if to the Company, at the Company Offices or such other address as the
Company shall give notice thereof to the Warrantholder in accordance with this
Section 9.
10. REGISTRATION RIGHTS.
(a) Defined Terms. As used in this Section 10, terms defined
elsewhere herein shall have their assigned meanings and each of the following
terms shall have the following meanings (such definitions to be applicable
to both the plural and singular of the terms defined):
(i) Registerable Securities. The term "Registerable
Securities" shall mean any of the Warrant Shares, including any shares of
Common Stock or other securities received in connection with any stock
split, stock divided, merger, reorganization, recapitalization,
reclassification or other distribution payable or issuable upon shares of
Common Stock. For the purposes of this Agreement, securities will cease to
be Registerable Securities when (A) a registration statement under the
Securities Act covering such Registerable Securities has been declared
effective and either (1) such Registerable Securities have been disposed of
pursuant to such effective registration statement or (2) (I) such
Registerable Securities remain covered by such effective Registration
Statement, (II) such Registerable Securities have been withdrawn from such
Registration Statement at the request or demand of the holder of such
Registerable Securities or (III) such registration statement has been
withdrawn at the request or demand of the holder of such Registerable
Securities, (B) such Registerable Securities are distributed to the public
pursuant to the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act, including, but not limited
to, Rules 144 and 144A promulgated under the Securities Act, or (C) such
Registerable Securities have been otherwise transferred and the Company, in
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accordance with applicable law and regulations, has delivered new
certificates or other evidences of ownership for such securities which are
not subject to any stop transfer order or other restriction on transfer.
(ii) Rightsholders. The term "Rightsholders" shall include
the Warrantholder, all successors and assigns of the Warrantholder, and all
transferees of Registerable Securities where such transfer affirmatively
includes the transfer and assignment of the rights of the transferor
Rightsholder under this Agreement with respect to the transferred
Registerable Securities; provided, however, the term "Rightsholders" shall
not include any person or entity who has sold, transferred or assigned all
of such person's or entity's Registerable Securities.
(iii) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Section 10 shall refer to this
Section 10 as a whole and not to any particular provision of this Section
10, and subsection, paragraph, clause, schedule and exhibit references are
to this Section 10 unless otherwise specified.
(b) Demand Registration.
(i) The Company hereby covenants and agrees to register
(the "Demand Registration"), under the Securities Act, all of the
Registerable Securities.
(ii) Number of Demand Registrations; Expenses. The holders
of Registerable Securities shall be entitled, in the aggregate, to one
Demand Registration, the Registration Expenses (as defined in Paragraph
10(e) hereof) of which, subject to the provisions of Paragraph 10(e), shall
be borne by the Company, but the Company shall not be responsible for the
payment of any underwriter's discount, commission or selling concession in
connection with any of the Registerable Securities. The Company shall not
be deemed to have effected a Demand Registration unless and until such
Demand Registration is declared effective.
(iii) Approval of Underwriter by the Company. If the Demand
Registration is to involve an underwritten offering, the managing
underwriter(s) and each selling agent selected by those Rightsholders
participating in each such underwritten offering shall be Subject to the
written approval of the Company, which approval may not be unreasonably
withheld.
(vi) "Initiating Holders" Defined. For purposes of this
Agreement, the term "Initiating Holders" shall mean, on any given date,
those Rightsholders holding Registerable Securities which would aggregate
50% or more of the total Registerable Securities that would be outstanding
on such date.
(c) Piggy-Back Registration.
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(i) If, at any time on or after the date on which this
warrant certificate has been issued and on or prior to two years after the
Expiration Time, the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company or any
other party of any class of equity security similar to any Registerable
Securities (other than a registration statement on Form S-4 or S-8 or any
successor form or a registration statement filed solely in connection with
an exchange offer, a business combination transaction or an offering of
securities solely to the existing stockholders or employees of the
Company), then the Company, on each such occasion, shall give written
notice (each, a "Company Piggy-Back Notice") of such proposed filing to
all of the Rightsholders owning Registerable Securities at least 20 days
before the anticipated filing date of such registration statement, and
such Company Piggy-Back Notice also shall be required to offer to such
Rightsholders the opportunity to register such aggregate number of
Registerable Securities as each such Rightsholder may request. Each such
Rightsholder shall have the right, exercisable for the ten days immediately
following the giving of the Company Piggy-Back Notice, to request, by
written notice (each, a "Holder Notice") to the Company, the inclusion
of all or any portion of the Registerable Securities of such
Rightsholders in such registration statement. The Company shall use
reasonable efforts to cause the managing underwriter(s) of a proposed
underwritten offering to permit the inclusion of the Registerable
Securities which were the subject of all Holder Notices in such
underwritten offering on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding anything
to the contrary contained in this Paragraph 10(c)(i), if the managing
underwriter(s) of such underwritten offering (or, in the case of an
offering not being underwritten, the Company) delivers a written opinion
(or, in the case of the Company, a resolution of its Board of Directors
certified by the President or Secretary of the Company) to the
Rightsholders of Registerable Securities which were the subject of all
Holder Notices that the total amount and kind of securities which they, the
Company and any other person Intend to include in such offering is such as
to materially and adversely affect the success of such offering, then the
amount of securities to be offered for the accounts of such Rightsholders
and persons other than the Company shall be eliminated or reduced pro rata
(based on the amount of securities owned by such Rightsholders and other
persons which carry registration rights) to the extent necessary to reduce
the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter(s) in its written opinion
(or the Board of Directors in its resolution).
(ii) Number of Piggy-Back Registrations; Expenses. The
obligations of the Company under this Paragraph 10(c) shall be unlimited
with respect to each Rightsholder. Subject to the provisions of Paragraph
10(e) hereof, the Company will pay all Registration Expenses in connection
with any registration of Registerable Securities effected pursuant to this
Paragraph 10(c), but the Company shall not be responsible for the payment
of any underwriter's discount, commission or selling concession in
connection therewith.
(iii) Withdrawal or Suspension of Registration Statement.
Notwithstanding anything contained to the contrary in this Paragraph 10(c),
the Company shall have the absolute right, whether before or after the
giving of a Company Piggy-Back Notice or Holder Notice, to determine not to
file a registration statement to which the
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Rightsholders shall have the right to include their Registerable Securities
therein pursuant to this Paragraph 10(c), to withdraw such registration
statement or to delay or suspend pursuing the effectiveness of such
registration statement. In the event of such a determination after the
giving of a Company Piggy-Back Notice, the Company shall give notice
of such determination to all Rightsholders and, thereupon, (A) in the
case of a determination not to register or to withdraw such registration
statement, the Company shall be relieved of its obligation under this
Paragraph 10(c) to register any of the Registerable Securities in
connection with such registration and (B) in the case of a determination to
delay the registration, the Company shall be permitted to delay or suspend
the registration of Registerable Securities pursuant to this Paragraph
10(c) for the same period as the delay in the registration of such other
securities. No registration effected under this Paragraph 10(c) shall
relieve the Company of its obligation to effect any registration upon
demand otherwise granted to a Rightsholder under Paragraph 10(b)
hereof or any other agreement with the Company.
(d) Registration Procedures.
(i) Obligations of the Company. The Company will, in connection
with any registration pursuant to Paragraph 10(b) or (c) hereof, as
expeditiously as possible:
(A) prepare and file with the Commission a registration
statement under the Securities Act on any appropriate form chosen by
the Company, in its sole discretion, which shall be available for the
sale of all Registerable Securities in accordance with the intended
method(s) of distribution thereof set forth in all applicable Demand
Requests, Tag-Along Requests and Holder Notices, and use its
commercially reasonable best efforts to cause such registration
statement to become effective as soon thereafter as reasonably
practicable; provided, that, at least five business days before filing
with the Commission of such registration statement, the Company shall
furnish to each Rightsholder whose Registerable Securities are
included therein draft copies of such registration statement,
including all exhibits thereto and documents incorporated by reference
therein, and, upon the reasonable request of any such Rightsholder,
shall continue to provide drafts of such registration statement until
filed, and, after such filing, the Company shall, as diligently as
practicable, provide to each such Rightsholders such number of copies
of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus), all exhibits thereto and documents
incorporated by reference therein and such other documents as such
Rightsholder may reasonably request in order to facilitate the
disposition of the Registerable Securities owned by such Rightsholder
and included in such registration statement; provided, further, the
Company shall modify or amend the registration statement as it relates
to such Rightsholder as reasonably requested by such Rightsholder on a
timely basis, and shall reasonably consider other changes to the
registration statement (but not including any exhibit or document
incorporated therein by reference) reasonably requested by such
Rightsholder on a timely basis, in light of the requirements of the
Securities Act and any other applicable laws and
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regulations; and provided, further, that the obligation of the
Company to effect such registration and/or cause such registration
statement to become effective, may be postponed for (1) such
period of time when the financial statements of the Company required
to be included in such registration statement are not available (due
solely to the fact that such financial statements have not been
prepared in the regular course of business of the Company) or (2)
any other bona fide corporate purpose, but then only for a period not
to exceed 90 days;
(B) prepare and file with the Commission such
amendments and post-effective amendments to a registration statement
as may be necessary to keep such registration statement effective for
up to nine months; and cause the related prospectus to be supplemented
by any required prospectus supplement, and as so supplemented to be
filed to the extent required pursuant to Rule 424 promulgated under
the Securities Act, during such nine-month period; and otherwise
comply with the provisions of the Securities Act with respect to the
disposition of all Registerable Securities covered by such
registration statement during the applicable period in accordance with
the intended method(s) of disposition of such Registerable Securities
set forth in such registration statement, prospectus or supplement to
such prospectus;
(C) notify the Rightsholders whose Registerable
Securities are included in such registration statement and the
managing underwriter(s), if any, of an underwritten offering of any of
the Registerable Securities included in such registration statement,
and confirm such advice in writing, (1) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and,
with respect to a registration statement or any post-effective
amendment, when the same has become effective, (2) of any request by
the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (3) of
the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for that purpose, (4) if at any time the representations
and warranties of the Company contemplated by clause (1) of Paragraph
10(d)(i)(J) hereof cease to be true and correct, (5) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of any of the Registerable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event which makes any
statement made in the registration statement, the prospectus or any
document incorporated therein by reference untrue or which requires
the making of any changes in the registration statement or prospectus
so that such registration statement, prospectus or document
incorporated by reference will not contain any untrue statement of
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(D) make reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of such
registration statement at the earliest possible moment and to prevent
the entry of such an order;
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(E) use reasonable efforts to register or qualify
the Registerable Securities included in such registration statement
under such other securities or blue sky laws of such jurisdictions as
any Rightsholder whose Registerable Securities are included in such
registration statement reasonably requests in writing and do any and
all other acts and things which may be necessary or advisable to
enable such Rightsholder to consummate the disposition in such
jurisdictions of such Registerable Securities; provided, that the
Company will not be required to (1) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this Paragraph 10(d)(i)(E), (2) subject itself to
taxation in any such jurisdiction or (3) take any action which would
subject it to general service of process in any such jurisdiction;
(F) make available for inspection by each
Rightsholder whose Registerable Securities are included in such
registration, any underwriter(s) participating in any disposition
pursuant to such registration statement, and any representative, agent
or employee of or attorney or accountant retained by any such
Rightsholder or underwriter(s) (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility (or establish a due diligence defense), and cause the
officers, directors and employees of the Company to supply all
information reasonably requested by any such Inspector in connection
with such registration statement; provided, that records which the
Company determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors, unless (1) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction or
(2) the disclosure of such Records is required by any applicable law
or regulation or any governmental regulatory body with jurisdiction
over such Rightsholder or underwriter; provided, further, that such
Rightsholder or underwriter(s) agree that such Rightsholder or
underwriter(s) will, upon learning the disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(G) cooperate with the Rightsholder whose
Registerable Securities are included in such registration statement
and the managing underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Registerable
Securities to be sold thereunder, not bearing any restrictive legends,
and enable such Registerable Securities to be in such denominations
and registered in such names as such Rightsholder or any managing
underwriter(s) may reasonably request at least two business days prior
to any sale of Registerable Securities;
(H) comply with all applicable rules and
regulations of the Commission and promptly make generally available to
its security holders an earnings statement covering a period of twelve
months commencing, (1) in an
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underwritten offering, at the end of any fiscal quarter in which
Registerable Securities are sold to underwriter(s), or (2) in a
non-underwritten offering, with the first month of the Company's
first fiscal quarter beginning after the effective date of such
registration statement, which earnings statement in each case
shall satisfy the provisions of Section 11(a) of the Securities Act;
(I) provide a CUSIP number for all Registerable
Securities not later than the effective date of the registration
statement relating to the first public offering of Registerable
Securities of the Company pursuant hereto;
(J) enter into such customary agreements
(including an underwriting agreement in customary form) and take all
such other actions reasonably requested by the Rightsholders holding a
majority of the Registerable Securities included in such registration
statement or the managing underwriter(s) in order to expedite and
facilitate the disposition of such Registerable Securities and in such
connection, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration,
(1) make such representations and warranties, if any, to the holders
of such Registerable Securities and any underwriter(s) with respect to
the registration statement, prospectus and documents incorporated by
reference, if any, in form, substance and scope as are customarily
made by issuers to underwriter(s) in underwritten offerings and
confirm the same if and when requested, (2) obtain opinions of counsel
to the Company and updates thereof addressed to each such Rightsholder
and the underwriter(s), if any, with respect to the registration
statement, prospectus and documents incorporated by reference, if any,
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Rightsholders and underwriter(s), (3) obtain a "cold
comfort" letter and updates thereof from the Company's independent
certified public accountants addressed to such Rightsholders and to
the underwriter(s), if any, which letters shall be in customary form
and cover matters of the type customarily covered in "cold comfort"
letters by accountants in connection with underwritten offerings, and
(4) deliver such documents and certificates as may be reasonably
requested by the Rightsholders holding a majority of such Registerable
Securities and managing underwriter(s), if any, to evidence compliance
with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; each such action
required by this Paragraph 10(d)(i)(J) shall be done at each closing
under such underwriting or similar agreement or as and to the extent
required thereunder; and
(K) if requested by the holders of a majority of
the Registerable Securities included in such registration statement,
use its best efforts to cause all Registerable Securities which are
included in such registration statement to be listed, subject to
notice of issuance, by the date of the first sale of such Registerable
Securities pursuant to such registration statement, on each securities
exchange, if any, on which securities similar to the Registered
Securities are listed.
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(ii) Obligations of Rightsholders. In connection with any
registration of Registerable Securities of a Rightsholder pursuant to
Paragraph 10(b) or (c) hereof:
(A) The Company may require that each Rightsholder
whose Registerable Securities are included in such registration
statement furnish to the Company such information regarding the
distribution of such Registerable Securities and such Rightsholder as
the Company may from time to time reasonably request in writing; and
(B) Each Rightsholder, upon receipt of any notice
from the Company of the happening of any event of the kind described
in clauses (2), (3), (5) and (6) of Paragraph 10(d)(i)(C) hereof,
shall forthwith discontinue disposition of Registerable Securities
pursuant to the registration statement covering such Registerable
Securities until such Rightsholder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (1) of
Paragraph 10(d)(i)(C) hereof, or until such Rightsholder is advised in
writing (the "Advice") by the Company that the use of the applicable
prospectus may be resumed, and until such Rightsholder has received
copies of any additional or supplemental filings which are
incorporated by reference in or to be attached to or included with
such prospectus, and, if so directed by the Company, such Rightsholder
will deliver to the Company (at the expense of the Company) all
copies, other than permanent file copies then in the possession of
such Rightsholder, of the current prospectus covering such
Registerable Securities at the time of receipt of such notice; the
Company shall have the right to demand that such Rightsholder or other
holder verify its agreement to the provisions of this Paragraph 10(d)
(ii)(B) in any Demand Request, Tag-Along Request or Holder Notice of
the Rightsholder or in a separate document executed by the
Rightsholder.
(e) Registration Expenses. All expenses incident to the performance
of or compliance with this Agreement by the Company, including, without
imitation, all registration and filing fees of the Commission, National
Association of Securities Dealers, Inc. and other agencies, fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registerable Securities), rating agency fees, printing expenses, messenger
and delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing, if any, of the Registerable Securities on any securities exchange and
fees and disbursements of counsel for the Company and the Company's
independent certified public accountants (including the expenses of any
special audit or "cold comfort" letters required by or incidental to such
performance), Securities Act or other liability insurance (if the Company
elects to obtain such insurance), the fees and expenses of any special experts
retained by the Company in connection with such registration and the fees and
expenses of any other person retained by the Company (but not including any
underwriting discounts or commissions attributable to the sale of
Registerable Securities or other out-of-pocket expenses of the Rightsholders,
or the agents who act on their behalf, unless reimbursement is specifically
approved by the Company) will be borne by the Company. All such
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<PAGE>
expenses are herein referred to as "Registration Expenses." Notwithstanding
the foregoing, the Company shall not be required to pay for any Registration
Expenses of any Demand Registration if such Demand Request is subsequently
withdrawn at the request of the holders of a majority of the Registerable
Securities included in such Demand Registration (in which case all Rightsholders
which requested the withdrawal of the Demand Registration shall bear such
expenses pro rata); provided that, if, at the time of such withdrawal, such
Rightsholders have learned of a material adverse change in the condition,
business or prospects of the Company from that known to such Rightsholders at
the time of their Demand Request, such Rightsholders shall not be required to
pay any of such expenses. In either event, if such Rightsholders pay in full the
expenses of such withdrawn Demand Registration, such Rightsholders shall retain
the right to one Demand Registration.
(f) Indemnification: Contribution.
(i) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Rightsholder, its officers and directors and each person who controls such
Rightsholder (within the meaning of the Securities Act), if any, and any
agent thereof against all losses, claims, damages, liabilities and expenses
incurred by such party pursuant to any actual or threatened suit, action,
proceeding or investigation (including reasonable attorney's fees and
expenses of investigation) arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in
the light of the circumstances under which they were made) not misleading,
except insofar as the same arise out of or are based upon, any such untrue
statement or omission based upon information with respect to such
Rightsholder furnished in writing to the Company by such Rightsholder
expressly for use therein.
(ii) Indemnification by Rightsholder. In connection with
any registration statement in which a Rightsholder is participating, each
such Rightsholder will be required to furnish to the Company in writing
such information with respect to such Rightsholder as the Company
reasonably requests for use in connection with any such registration
statement or prospectus, and each Rightsholder agrees to the extent it is
such a holder of Registerable Securities included in such registration
statement, and each other such holder of Registerable Securities included
in such Registration Statement will be required to agree, to indemnify,
to the full extent permitted by law, the Company, the directors and
officers of the Company and each person who controls the Company (within
the meaning of the Securities Act) and any agent thereof, against any
losses, claims, damages, liabilities and expenses (including reasonable
attorney's fees and expenses of investigation incurred by such party
pursuant to any actual or threatened suit, action, proceeding or
investigation arising out of or based upon any untrue or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact necessary, to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they are made)
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is based upon information relating
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<PAGE>
to such Rightsholder or other holder furnished in writing to the Company
expressly for use therein.
(iii) Conduct of Indemnification Proceedings. Promptly
after receipt by an indemnified party under this Paragraph 10(f) of written
notice of the commencement of any action, proceeding, suit or investigation
or threat thereof made in writing for which such indemnified party may
claim indemnification or contribution pursuant to this Agreement, such
indemnified party shall notify in writing the indemnifying party of such
commencement or threat; but the omission so to notify the indemnifying
party shall not relieve the indemnifying party from any liability which the
indemnifying party may have to any indemnified party (A) hereunder, unless
the indemnifying party is actually prejudiced thereby, or (B) otherwise
than under this Paragraph 10(f). In case any such action, suit or
proceeding shall be brought against any indemnified party, and the
indemnified party shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein
and the indemnifying party shall assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party, and the obligation to pay
all expenses relating thereto. The indemnified party shall have the right
to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party has agreed to pay such fees and expenses, (B) the
indemnifying party shall have failed to assume the defense of such action,
suit or proceeding or to employ counsel reasonably satisfactory to the
indemnified party therein or to pay all expenses relating thereto or (C)
the named parties to any such action or proceeding (including any impleaded
parties) include both the indemnified party and the indemnifying party and
the indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to the indemnified party which are
different from or additional to those available to the indemnifying party
and which may result in a conflict between the indemnifying party and such
indemnified party (in which case, if the indemnified party notifies the
indemnifying party in writing that the indemnified party elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action or
proceeding on behalf of the indemnified party; it being understood,
however, that the indemnifying party shall not, in connection with any
one such action, suit or proceeding or separate but substantially similar
or related actions, suits or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys at any time
for the indemnified party, which firm shall be designated in writing by the
indemnified party).
(iv) Contribution. If the indemnification provided for in
this Paragraph 10(f) from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses (A) in such proportion as
is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other
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<PAGE>
or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the relative fault of the
indemnifying party and indemnified party, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and the indemnified parties shall be determined by reference to, among
other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party
as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitation
set forth in Paragraph 10(f)(v), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Paragraph 10(f)(iv) were
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to in clauses (A) and (B) of the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(v) Limitation. Anything to the contrary contained in this
Paragraph 10(f) or in Paragraph 10(g) notwithstanding, no holder of
Registerable Securities shall be liable for indemnification and
contribution payments aggregating an amount in excess of the maximum amount
received by such holder in connection with any sale of Registerable
Securities as contemplated herein.
(g) Participation in Underwritten Registration. No Rightsholder may
participate in any underwritten registration hereunder unless such Rightsholder
(i) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange
Act and (ii) completes and executes all questionnaires, appropriate and limited
powers of attorney, escrow agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangement; provided, that all such documents shall be consistent with the
provisions of Paragraph 10(e) hereof.
11. MISCELLANEOUS.
This Warrant Certificate and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This certificate is deemed to have been delivered in the State of New
York and shall be construed and enforced in accordance with and governed by
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<PAGE>
the laws of such State. The headings in this Warrant Certificate are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof.
12. EXPIRATION.
Unless as hereinafter provided, the right to exercise these
Warrants shall expire at the Expiration Time.
Dated: January 8, 2000
VIZACOM INC.
By: /s/ Mark E. Leininger
Mark E. Leininger, President
ATTEST:
/s/ Marc E. Jaffe
Marc E. Jaffe, Secretary
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<PAGE>
EXERCISE FORM
Dated: ,
---------------- ----
TO: VIZACOM INC.:
The undersigned hereby irrevocably elects to exercise the within
Warrant, to the extent of purchasing _________________ shares of Common Stock,
and hereby makes payment of ____________ in payment of the actual Exercise Price
thereof.
-------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
-------------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
-------------------------------------------------------------
Address:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
--------------------------
Signature:
-------------------------------------------------------------
(Signature must conform in all respects to the name of the
Warrantholder as set forth on the face of this Warrant
Certificate.)
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<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED,
---------------------------------------------
(Please type or print in block letters)
hereby sells, assigns and transfers unto:
Name:
----------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
----------------------------------------------------------
Address:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
this Warrant Certificate and the Warrants represented by this Warrant
Certificate to the extent of ________________ Warrants and does hereby
irrevocably constitute and appoint __________________________ Attorney-in-Fact,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Dated:
----------------------
Signature:
----------------------------------------------------------
(Signature must conform in all respects to the name of
the Warrantholder as set forth on the face of this
Warrant Certificate.)
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NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES OF
COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
VOID AFTER 5:00 P.M. ON JANUARY 7, 2003
VIZACOM INC.
WARRANT CERTIFICATE
150,000 COMMON STOCK PURCHASE WARRANTS
Teaneck, New Jersey
Warrant Certificate No. AA-7 January 8, 2000
THIS IS TO CERTIFY THAT, for value received, Arel AMG, Inc., a
Delaware corporation or registered assigns (the "Warrantholder") permitted by
the terms of this Warrant Certificate, is the registered owner of the number of
Common Stock Purchase Warrants (each, a "Warrant") set forth above, each Warrant
entitling the owner thereof to purchase from Vizacom Inc., a Delaware
Corporation (the "Company"), at any time on or prior to 5:00 P.M., New York City
time, on January 7, 2003 (the "Expiration Time"), one duly authorized, validly
issued, fully paid and nonassessable share (each, a "Warrant Share") of the
common stock, par value $.001 per share ("Common Stock"), of the Company, at a
purchase price of $3.00 per share (the "Purchase Price"), all subject to the
terms and conditions contained herein. The number of Warrants evidenced by this
Warrant Certificate (and the number and kind of securities which may be
purchased upon exercise hereof) set forth above, and the Purchase Price per
share set forth above, are as of the date hereof. As provided herein, the
Purchase Price and the number of shares of Common Stock or other securities
which may be purchased upon the exercise of the Warrants evidenced by this
Warrant Certificate are, upon the happening of certain events, subject to
modification and adjustment.
This Warrant Certificate, together with any warrant certificate(s)
issued in replacement or substitution hereof (as provided for herein) evidencing
all or part of the Warrants evidenced hereby, are sometimes collectively
referred to herein as the "Warrant Certificates."
<PAGE>
The rights of the registered holder of this Warrant Certificate shall
be subject to the following further terms and conditions:
1. EXERCISE OF WARRANTS.
(a) The Warrants may be exercised, in whole or in part, on or prior
to the Expiration Time by surrendering this Warrant Certificate, with the
purchase form provided for herein duly executed by the Warrantholder or by the
Warrantholder's duly authorized attorney-in-fact, at the principal office of
the Company, presently located at Glenpointe Centre East, 300 Frank W. Burr
Boulevard - 7th Floor, Teaneck, New Jersey 07666, or at such other office or
agency in the United States as the Company may designate by notice in
writing to the Warrantholder (in either event, the "Company Offices"),
accompanied by payment in full, either in the form of cash, bank cashier's check
or certified check payable to the order of the Company, of the Exercise Price
payable in respect of the Warrants being exercised. If fewer than all of the
Warrants are exercised, the Company shall, upon each exercise prior to the
Expiration Time, execute and deliver to the Warrantholder a new Warrant
Certificate (dated as of the date hereof) evidencing the balance of the
Warrants that remain exercisable.
(b) On the date of exercise of the Warrants, the Warrantholder
exercising same shall be deemed to have become the holder of record for all
purposes of the Warrant Shares to which the exercise relates.
(c) As soon as practicable, but not in excess of ten days, after the
exercise of all or part of the Warrants evidenced by this Warrant Certificate,
the Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the
Warrantholder a certificate or certificates evidencing the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares to which
the Warrantholder shall be entitled upon such exercise.
(d) No certificates for fractional Warrant Shares shall be issued upon
the exercise of any of the Warrants but, in lieu thereof, the Company shall,
upon exercise of all the Warrants, round up any fractional Warrant Share to the
nearest whole share of Common Stock.
2. ISSUANCE OF COMMON STOCK; RESERVATION OF SHARES.
(a) The Company covenants and agrees that all Warrant Shares which may
be issued upon the exercise of all or part of the Warrants will, upon issuance
in accordance with the terms hereof, be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
(b) The Company further covenants and agrees that if any shares of
Common Stock to be reserved for the purpose of the issuance of Warrant Shares
upon the exercise of Warrants require registration with, or approval of, any
governmental authority under any federal or state law before such shares may
be validly issued or delivered upon exercise, then the Company will promptly
use its best efforts to effect such registration or obtain such approval, as the
case may be.
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<PAGE>
3. ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND CHARACTER OF WARRANT SHARES, AND
NUMBER OF WARRANTS.
The Exercise Price the number and kind of securities purchasable upon
the exercise of each Warrant shall be subject to adjustment from time to time
upon the happening of the events enumerated in this Section 3.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case the
Company shall at any time on or before the Expiration Time:
(i) pay a dividend in shares of Common Stock [or other stock
of the Company] or make a distribution in shares of Common Stock or such
other stock to holders of all its outstanding shares of Common Stock;
(ii) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares;
(iii) combine the outstanding shares of Common Stock into a
smaller number of shares of Common Stock; or
(iv) issue by reclassification of its shares of Common Stock
other securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing corporation);
then the number and kind of Warrant Shares purchasable upon exercise of
each Warrant outstanding immediately prior thereto shall be adjusted so that the
Warrantholder shall be entitled to receive the kind and number of shares of
Common Stock or other securities of the Company which the Warrantholder would
have owned or have been entitled to receive after the happening of any of the
events described above had such Warrant been exercised in full immediately prior
to the earlier of the happening of such event or any record date in respect
thereto. In the event of any adjustment of the number of Warrant Shares
purchasable upon the exercise of each then outstanding Warrants pursuant to this
Paragraph 3(a), the Exercise Price shall be adjusted to be the amount resulting
from dividing the number of shares of Common Stock (including fractional shares
of Common Stock) covered by such Warrant immediately after such adjustment into
the total amount payable upon exercise of such Warrant in full immediately prior
to such adjustment. An adjustment made pursuant to this Paragraph 3(a) shall
become effective immediately after the effective date of such event retroactive
to the record date for any such event. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) EXTRAORDINARY DIVIDENDS. In case the Company shall at any time
on or before the Expiration Time fix a record date for the issuance of rights,
options, or warrants to all holders of its outstanding shares of Common Stock,
entitling them (for a period expiring within 45 days after such record date) to
subscribe for or purchase shares of Common Stock (or securities exchangeable for
or convertible into shares of Common Stock) at a price per share of Common Stock
(or having an exchange or conversion price per share of Common Stock, with
respect to a security exchangeable
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<PAGE>
for or convertible into shares of Common Stock) which is lower than the
current Market Price per share of Common Stock (as defined in Paragraph 3(d)
below) on such record date, then the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, of which (i) the numerator shall be the number of shares of
Common Stock outstanding on such record date plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock so to be offered (or the aggregate initial exchange or conversion price of
the exchangeable or convertible securities so to be offered) would purchase at
such current Market Price and (ii) the denominator shall be the number of shares
of Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the exchangeable or convertible securities so to be offered are initially
exchangeable or convertible). Such adjustment shall become effective at the
close of business on such record date; however, to the extent that shares of
Common Stock (or securities exchangeable for or convertible into shares of
Common Stock) are not delivered after the expiration of such rights, options, or
warrants, the Exercise Price shall be readjusted (but only with respect to
Warrants exercised after such expiration) to the Exercise Price which would then
be in effect had the adjustments made upon the issuance of such rights, options,
or warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or securities exchangeable for or convertible into shares of
Common Stock) actually issued. In case any subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company and shall be described in a statement mailed to the
Warrantholder. Shares of Common Stock owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such computation.
(c) EXTRAORDINARY DISTRIBUTIONS. In case the Company shall at any time
after the original date of issuance of the Warrants (the "Date of Issuance")
distribute to all holders of its shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) evidences of its indebtedness or assets
(excluding cash dividends and distributions payable out of consolidated net
income or earned surplus in accordance with Delaware law and dividends or
distributions payable in shares of stock described in Paragraph 3(a) above) or
rights, options, or warrants or exchangeable or convertible securities
containing the right to subscribe for or purchase shares of Common Stock (or
securities exchangeable for or convertible into shares of Common Stock), then
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for such distribution by a fraction, of
which (i) the numerator shall be the current Market Price per share of Common
Stock (as defined in Paragraph 3(d)) on such record date, less the fair market
value (as determined by the Board of Directors of the Company, whose
determination shall be conclusive, and described in a notice to the
Warrantholders) of the portion of the evidences of indebtedness or assets so to
be distributed or of such rights, options or warrants applicable to one share of
Common Stock and (ii) the denominator shall be such current Market Price per
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of distribution
retroactive to the record date for such transaction.
(d) CURRENT MARKET PRICE DEFINED. For the purpose of any computation
under Paragraphs 3(b) and/or 3(c), the current Market Price per share of Common
Stock at any date shall
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<PAGE>
be deemed to be the average daily Closing Price of the shares of Common
Stock for twenty consecutive trading days ending within fifteen days before the
date in question. The term "Closing Price" of the shares of Common Stock for a
day or days shall mean (i) if the shares of Common Stock are listed or admitted
for trading on a national securities exchange, the last reported sales price
regular way, or, in case no such reported sale takes place on such day or days,
the average of the reported closing bid and asked prices regular way, in either
case on the principal national securities exchange on which the shares of the
Common Stock are listed or admitted for trading, or (ii) if the shares of Common
Stock are not listed or admitted for trading on a national securities exchange,
(A) the last transaction price for the Common Stock on The Nasdaq Stock Market
("Nasdaq") or, in the case no such reported transaction takes place on such day
or days, the average of the reported closing bid and asked prices thereof quoted
on Nasdaq, or (B) if the shares of Common Stock are not quoted on Nasdaq, the
average of the closing bid and asked prices of the Common Stock as quoted on the
Over-The-Counter Bulletin Board maintained by the National Association of
Securities Dealers, Inc. (the "Bulletin Board"), or (C) if the shares of Common
Stock are not quoted on Nasdaq nor on the Bulletin Board, the average of the
closing bid and asked prices of the common stock in the over-the-counter market,
as reported by The National Quotation Bureau, Inc., or an equivalent generally
accepted reporting service, or (iii) if on any such trading day or days the
shares of Common Stock are not quoted by any such organization, the fair market
value of the shares of Common Stock on such day or days, as determined in good
faith by the Board of Directors of the Company, shall be used.
(e) MINIMUM ADJUSTMENT. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than five cents ($.05) per
share. Any adjustment of less than five cents ($.05) per share of any Exercise
Price shall be carried forward and shall be made at the time of and together
with any subsequent adjustment which, together with adjustment or adjustments so
carried forward, amounts to five cents ($.05) per share or more. However, upon
exercise of this Warrant Certificate, the Company shall make all necessary
adjustments (to the nearest cent) not theretofore made to the Exercise Price up
to and including the effective date upon which this Warrant Certificate is
exercised.
(f) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price shall be
adjusted pursuant to this Section 3, the Company shall promptly deliver a
certificate signed by the President, a Vice President, the Chief Financial
Officer, Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated (including a description of the basis on
which the Board of Directors of the Company made any determination hereunder),
by first class mail postage prepaid to each Warrantholder.
(g) CAPITAL REORGANIZATIONS AND OTHER RECLASSIFICATIONS. In case of
any capital reorganization of the Company, or of any reclassification of the
shares of Common Stock (other than a reclassification, subdivision or
combination of shares of Common Stock referred to in Paragraph 3(a)), or in
case of the consolidation of the Company with, or the merger of the Company
with, or merger of the Company into, any other corporation (other than a
reclassification of the shares of Common Stock referred to in Paragraph 3(a)
or a consolidation or merger which does not result in
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<PAGE>
any reclassification or change of the outstanding shares of Common Stock)
or of the sale of the properties and assets of the Company as, or substantially
as, an entirety to any other corporation or entity, each Warrant shall, after
such capital reorganization, reclassification of shares of Common Stock,
consolidation, merger, or sale, be exercisable, upon the terms and conditions
specified in this Warrant Certificate, for the kind, amount and number of shares
or other securities, assets, or cash to which a holder of the number of shares
of Common Stock purchasable (at the time of such capital reorganization,
reclassification of shares of Common Stock, consolidation, merger or sale) upon
exercise of such Warrant would have been entitled to receive upon such capital
reorganization, reclassification of shares of Common Stock, consolidation,
merger, or sale; and in any such case, if necessary, the provisions set forth in
this Section 3 with respect to the rights and interests thereafter of the
Warrantholder shall be appropriately adjusted so as to be applicable, as nearly
equivalent as possible, to any shares or other securities, assets, or cash
thereafter deliverable on the exercise of the Warrants. The Company shall not
effect any such consolidation, merger, or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation or entity
(if other than the Company) resulting from such consolidation or merger or the
corporation or entity purchasing such assets or other appropriate corporation or
entity shall assume, by written instrument, the obligation to deliver to the
Warrantholder such shares, securities, assets, or cash as, in accordance with
the foregoing provisions, such holders may be entitled to purchase and the other
obligations hereunder. The subdivision or combination of shares of Common Stock
at any time outstanding into a greater or lesser number of shares shall not be
deemed to be a reclassification of the shares of Common Stock for purposes of
this Paragraph 3(e).
(h) ADJUSTMENTS TO OTHER SECURITIES. In the event that at any time,
as a result of an adjustment made pursuant to this Section 3, the Warrantholder
shall become entitled to purchase any shares or securities of the Company other
than the shares of Common Stock, thereafter the number of such other shares or
securities so purchasable upon exercise of each Warrant and the exercise price
for such shares or securities shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as possible to the provisions with
respect to the shares of Common Stock contained in Paragraphs 3(a) through (e),
inclusive.
(i) DEFERRAL OF ISSUANCE OF ADDITIONAL SHARES IN CERTAIN
CIRCUMSTANCES. In any case in which this Section 3 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the Warrantholder exercised after such record date the shares
of Common Stock, if any, issuable upon such exercise over and above the
Warrant Shares, if any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment; provided, however, that the
Company shall deliver as soon as practicable to such holder a due bill or other
appropriate instrument provided by the Company evidencing such holder's right
to receive such additional shares of Common Stock upon the occurrence of the
event requiring such adjustment.
4. DEFINITION OF COMMON STOCK.
The Common Stock issuable upon exercise of the Warrants shall be the
Common Stock as constituted on the date hereof except as otherwise provided in
Section 3.
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5. REPLACEMENT OF SECURITIES.
If this Warrant Certificate shall be lost, stolen, mutilated or
destroyed, the Company shall, on such terms as to indemnity or otherwise as the
Company may in its discretion reasonably impose, issue a new certificate of like
tenor or date representing in the aggregate the right to subscribe for and
purchase the number of shares of Common Stock which may be subscribed for and
purchased hereunder. Any such new certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
6. REGISTRATION.
This Warrant Certificate, as well as all other warrant certificates
representing Warrants shall be numbered and shall be registered in a register
(the "Warrant Register") maintained at the Company Offices as they are issued.
The Warrant Register shall list the name, address and Social Security or other
Federal Identification Number, if any, of all Warrantholders. The Company shall
be entitled to treat the Warrantholder as set forth in the Warrant Register as
the owner in fact of the Warrants as set forth therein for all purposes and
shall not be bound to recognize any equitable or other claim to or interest in
such Warrants on the part of any other person, and shall not be liable for any
registration of transfer of Warrants that are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with such knowledge of such facts
that its participation therein amounts to bad faith.
7. TRANSFER.
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE SHARES
OF COMMON STOCK OR ANY OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANTS
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH WARRANTS
HAVE BEEN ACQUIRED, AND ANY SHARES OF COMMON STOCK OR ANY OTHER SECURITIES
ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE REQUIRED TO BE ACQUIRED, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANTS AND/OR SUCH SHARES OR OTHER
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH
WARRANTS AND SUCH SHARES OR OTHER SECURITIES TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES LAWS.
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8. EXCHANGE OF WARRANT CERTIFICATES.
This Warrant Certificate may be exchanged for another certificate or
certificates entitling the Warrantholder thereof to purchase a like aggregate
number of Warrant Shares as this Warrant Certificate entitles such Warrantholder
to purchase. A Warrantholder desiring to so exchange this Warrant Certificate
shall make such request in writing delivered to the Company, and shall surrender
this Warrant Certificate therewith. Thereupon, the Company shall execute and
deliver to the person entitled thereto a new certificate or certificates, as the
case may be, as so requested.
9. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given when delivered in person, against written receipt
therefor, or two days after being sent, by registered or certified mail, postage
prepaid, return receipt requested, and, if to the Warrantholder, at such address
as is shown on the Warrant Register or as may otherwise may have been furnished
to the Company in writing in accordance with this Section 9 by the Warrantholder
and, if to the Company, at the Company Offices or such other address as the
Company shall give notice thereof to the Warrantholder in accordance with this
Section 9.
10. REGISTRATION RIGHTS.
(a) Defined Terms. As used in this Section 10, terms defined
elsewhere herein shall have their assigned meanings and each of the following
terms shall have the following meanings (such definitions to be applicable
to both the plural and singular of the terms defined):
(i) Registerable Securities. The term "Registerable
Securities" shall mean any of the Warrant Shares, including any shares of
Common Stock or other securities received in connection with any stock
split, stock divided, merger, reorganization, recapitalization,
reclassification or other distribution payable or issuable upon shares of
Common Stock. For the purposes of this Agreement, securities will cease to
be Registerable Securities when (A) a registration statement under the
Securities Act covering such Registerable Securities has been declared
effective and either (1) such Registerable Securities have been disposed of
pursuant to such effective registration statement or (2) (I) such
Registerable Securities remain covered by such effective Registration
Statement, (II) such Registerable Securities have been withdrawn from such
Registration Statement at the request or demand of the holder of such
Registerable Securities or (III) such registration statement has been
withdrawn at the request or demand of the holder of such Registerable
Securities, (B) such Registerable Securities are distributed to the public
pursuant to the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act, including, but not limited
to, Rules 144 and 144A promulgated under the Securities Act, or (C) such
Registerable Securities have been otherwise transferred and the Company, in
accordance with applicable law and regulations, has delivered new
certificates or other evidences of ownership for such securities which are
not subject to any stop transfer order or other restriction on transfer.
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(ii) Rightsholders. The term "Rightsholders" shall include
the Warrantholder, all successors and assigns of the Warrantholder, and all
transferees of Registerable Securities where such transfer affirmatively
includes the transfer and assignment of the rights of the transferor
Rightsholder under this Agreement with respect to the transferred
Registerable Securities; provided, however, the term "Rightsholders" shall
not include any person or entity who has sold, transferred or assigned all
of such person's or entity's Registerable Securities.
(iii) The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Section 10 shall refer to this
Section 10 as a whole and not to any particular provision of this Section
10, and subsection, paragraph, clause, schedule and exhibit references are
to this Section 10 unless otherwise specified.
(b) Demand Registration.
(i) The Company hereby covenants and agrees to register
(the "Demand Registration"), under the Securities Act, all of the
Registerable Securities.
(ii) Number of Demand Registrations; Expenses. The holders
of Registerable Securities shall be entitled, in the aggregate, to one
Demand Registration, the Registration Expenses (as defined in Paragraph
10(e) hereof) of which, subject to the provisions of Paragraph 10(e), shall
be borne by the Company, but the Company shall not be responsible for the
payment of any underwriter's discount, commission or selling concession in
connection with any of the Registerable Securities. The Company shall not
be deemed to have effected a Demand Registration unless and until such
Demand Registration is declared effective.
(iii) Approval of Underwriter by the Company. If the Demand
Registration is to involve an underwritten offering, the managing
underwriter(s) and each selling agent selected by those Rightsholders
participating in each such underwritten offering shall be Subject to the
written approval of the Company, which approval may not be unreasonably
withheld.
(vi) "Initiating Holders" Defined. For purposes of this
Agreement, the term "Initiating Holders" shall mean, on any given date,
those Rightsholders holding Registerable Securities which would aggregate
50% or more of the total Registerable Securities that would be outstanding
on such date.
(c) Piggy-Back Registration.
(i) If, at any time on or after the date on which this
warrant certificate has been issued and on or prior to two years after the
Expiration Time, the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company or any
other party of any class of equity security similar to any Registerable
Securities (other than a registration statement on Form S-4 or S-8 or any
successor form or
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a registration statement filed solely in connection with an exchange offer,
a business combination transaction or an offering of securities solely to
the existing stockholders or employees of the Company), then the Company,
on each such occasion, shall give written notice (each, a "Company
Piggy-Back Notice") of such proposed filing to all of the Rightsholders
owning Registerable Securities at least 20 days before the anticipated
filing date of such registration statement, and such Company Piggy-Back
Notice also shall be required to offer to such Rightsholders the
opportunity to register such aggregate number of Registerable Securities as
each such Rightsholder may request. Each such Rightsholder shall have the
right, exercisable for the ten days immediately following the giving of the
Company Piggy-Back Notice, to request, by written notice (each, a "Holder
Notice") to the Company, the inclusion of all or any portion of the
Registerable Securities of such Rightsholders in such registration
statement. The Company shall use reasonable efforts to cause the managing
underwriter(s) of a proposed underwritten offering to permit the inclusion
of the Registerable Securities which were the subject of all Holder Notices
in such underwritten offering on the same terms and conditions as any
similar securities of the Company included therein. Notwithstanding
anything to the contrary contained in this Paragraph 10(c)(i), if the
managing underwriter(s) of such underwritten offering (or, in the case of
an offering not being underwritten, the Company) delivers a written opinion
(or, in the case of the Company, a resolution of its Board of Directors
certified by the President or Secretary of the Company) to the
Rightsholders of Registerable Securities which were the subject of all
Holder Notices that the total amount and kind of securities which they, the
Company and any other person Intend to include in such offering is such as
to materially and adversely affect the success of such offering, then the
amount of securities to be offered for the accounts of such Rightsholders
and persons other than the Company shall be eliminated or reduced pro rata
(based on the amount of securities owned by such Rightsholders and other
persons which carry registration rights) to the extent necessary to reduce
the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter(s) in its written opinion
(or the Board of Directors in its resolution).
(ii) Number of Piggy-Back Registrations; Expenses. The
obligations of the Company under this Paragraph 10(c) shall be unlimited
with respect to each Rightsholder. Subject to the provisions of Paragraph
10(e) hereof, the Company will pay all Registration Expenses in connection
with any registration of Registerable Securities effected pursuant to this
Paragraph 10(c), but the Company shall not be responsible for the payment
of any underwriter's discount, commission or selling concession in
connection therewith.
(iii) Withdrawal or Suspension of Registration Statement.
Notwithstanding anything contained to the contrary in this Paragraph 10(c),
the Company shall have the absolute right, whether before or after the
giving of a Company Piggy-Back Notice or Holder Notice, to determine not to
file a registration statement to which the Rightsholders shall have the
right to include their Registerable Securities therein pursuant to this
Paragraph 10(c), to withdraw such registration statement or to delay or
suspend pursuing the effectiveness of such registration statement. In the
event of such a determination after the giving of a Company Piggy-Back
Notice, the Company shall give notice of such determination to all
Rightsholders and, thereupon, (A) in the case of a
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<PAGE>
determination not to register or to withdraw such registration statement,
the Company shall be relieved of its obligation under this Paragraph 10(c)
to register any of the Registerable Securities in connection with such
registration and (B) in the case of a determination to delay the
registration, the Company shall be permitted to delay or suspend the
registration of Registerable Securities pursuant to this Paragraph 10(c)
for the same period as the delay in the registration of such other
securities. No registration effected under this Paragraph 10(c) shall
relieve the Company of its obligation to effect any registration upon
demand otherwise granted to a Rightsholder under Paragraph 10(b)
hereof or any other agreement with the Company.
(d) Registration Procedures.
(i) Obligations of the Company. The Company will, in connection
with any registration pursuant to Paragraph 10(b) or (c) hereof, as
expeditiously as possible:
(A) prepare and file with the Commission a registration
statement under the Securities Act on any appropriate form chosen by
the Company, in its sole discretion, which shall be available for the
sale of all Registerable Securities in accordance with the intended
method(s) of distribution thereof set forth in all applicable Demand
Requests, Tag-Along Requests and Holder Notices, and use its
commercially reasonable best efforts to cause such registration
statement to become effective as soon thereafter as reasonably
practicable; provided, that, at least five business days before filing
with the Commission of such registration statement, the Company shall
furnish to each Rightsholder whose Registerable Securities are
included therein draft copies of such registration statement,
including all exhibits thereto and documents incorporated by reference
therein, and, upon the reasonable request of any such Rightsholder,
shall continue to provide drafts of such registration statement until
filed, and, after such filing, the Company shall, as diligently as
practicable, provide to each such Rightsholders such number of copies
of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus), all exhibits thereto and documents
incorporated by reference therein and such other documents as such
Rightsholder may reasonably request in order to facilitate the
disposition of the Registerable Securities owned by such Rightsholder
and included in such registration statement; provided, further, the
Company shall modify or amend the registration statement as it relates
to such Rightsholder as reasonably requested by such Rightsholder on a
timely basis, and shall reasonably consider other changes to the
registration statement (but not including any exhibit or document
incorporated therein by reference) reasonably requested by such
Rightsholder on a timely basis, in light of the requirements of the
Securities Act and any other applicable laws and regulations; and
provided, further, that the obligation of the Company to effect such
registration and/or cause such registration statement to become
effective, may be postponed for (1) such period of time when the
financial statements of the Company required to be included in such
registration statement are not available (due solely to the fact that
such financial statements have not been prepared in the regular course
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of business of the Company) or (2) any other bona fide corporate
purpose, but then only for a period not to exceed 90 days;
(B) prepare and file with the Commission such
amendments and post-effective amendments to a registration statement
as may be necessary to keep such registration statement effective for
up to nine months; and cause the related prospectus to be supplemented
by any required prospectus supplement, and as so supplemented to be
filed to the extent required pursuant to Rule 424 promulgated under
the Securities Act, during such nine-month period; and otherwise
comply with the provisions of the Securities Act with respect to the
disposition of all Registerable Securities covered by such
registration statement during the applicable period in accordance with
the intended method(s) of disposition of such Registerable Securities
set forth in such registration statement, prospectus or supplement to
such prospectus;
(C) notify the Rightsholders whose Registerable
Securities are included in such registration statement and the
managing underwriter(s), if any, of an underwritten offering of any of
the Registerable Securities included in such registration statement,
and confirm such advice in writing, (1) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and,
with respect to a registration statement or any post-effective
amendment, when the same has become effective, (2) of any request by
the Commission for amendments or supplements to a registration
statement or related prospectus or for additional information, (3) of
the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for that purpose, (4) if at any time the representations
and warranties of the Company contemplated by clause (1) of Paragraph
10(d)(i)(J) hereof cease to be true and correct, (5) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of any of the Registerable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event which makes any
statement made in the registration statement, the prospectus or any
document incorporated therein by reference untrue or which requires
the making of any changes in the registration statement or prospectus
so that such registration statement, prospectus or document
incorporated by reference will not contain any untrue statement of
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(D) make reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of such
registration statement at the earliest possible moment and to prevent
the entry of such an order;
(E) use reasonable efforts to register or qualify
the Registerable Securities included in such registration statement
under such other securities or blue sky laws of such jurisdictions as
any Rightsholder whose Registerable Securities are included in such
registration statement reasonably requests in writing and do any and
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all other acts and things which may be necessary or advisable to
enable such Rightsholder to consummate the disposition in such
jurisdictions of such Registerable Securities; provided, that the
Company will not be required to (1) qualify generally to do business
in any jurisdiction where it would not otherwise be required to
qualify but for this Paragraph 10(d)(i)(E), (2) subject itself to
taxation in any such jurisdiction or (3) take any action which would
subject it to general service of process in any such jurisdiction;
(F) make available for inspection by each
Rightsholder whose Registerable Securities are included in such
registration, any underwriter(s) participating in any disposition
pursuant to such registration statement, and any representative, agent
or employee of or attorney or accountant retained by any such
Rightsholder or underwriter(s) (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility (or establish a due diligence defense), and cause the
officers, directors and employees of the Company to supply all
information reasonably requested by any such Inspector in connection
with such registration statement; provided, that records which the
Company determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors, unless (1) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction or
(2) the disclosure of such Records is required by any applicable law
or regulation or any governmental regulatory body with jurisdiction
over such Rightsholder or underwriter; provided, further, that such
Rightsholder or underwriter(s) agree that such Rightsholder or
underwriter(s) will, upon learning the disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the
Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Records deemed
confidential;
(G) cooperate with the Rightsholder whose
Registerable Securities are included in such registration statement
and the managing underwriter(s), if any, to facilitate the timely
preparation and delivery of certificates representing Registerable
Securities to be sold thereunder, not bearing any restrictive legends,
and enable such Registerable Securities to be in such denominations
and registered in such names as such Rightsholder or any managing
underwriter(s) may reasonably request at least two business days prior
to any sale of Registerable Securities;
(H) comply with all applicable rules and
regulations of the Commission and promptly make generally available to
its security holders an earnings statement covering a period of twelve
months commencing, (1) in an underwritten offering, at the end of any
fiscal quarter in which Registerable Securities are sold to
underwriter(s), or (2) in a non-underwritten offering, with the first
month of the Company's first fiscal quarter beginning after the
effective date of
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such registration statement, which earnings statement in each
case shall satisfy the provisions of Section 11(a) of the Securities
Act;
(I) provide a CUSIP number for all Registerable
Securities not later than the effective date of the registration
statement relating to the first public offering of Registerable
Securities of the Company pursuant hereto;
(J) enter into such customary agreements
(including an underwriting agreement in customary form) and take all
such other actions reasonably requested by the Rightsholders holding a
majority of the Registerable Securities included in such registration
statement or the managing underwriter(s) in order to expedite and
facilitate the disposition of such Registerable Securities and in such
connection, whether or not an underwriting agreement is entered into
and whether or not the registration is an underwritten registration,
(1) make such representations and warranties, if any, to the holders
of such Registerable Securities and any underwriter(s) with respect to
the registration statement, prospectus and documents incorporated by
reference, if any, in form, substance and scope as are customarily
made by issuers to underwriter(s) in underwritten offerings and
confirm the same if and when requested, (2) obtain opinions of counsel
to the Company and updates thereof addressed to each such Rightsholder
and the underwriter(s), if any, with respect to the registration
statement, prospectus and documents incorporated by reference, if any,
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such Rightsholders and underwriter(s), (3) obtain a "cold
comfort" letter and updates thereof from the Company's independent
certified public accountants addressed to such Rightsholders and to
the underwriter(s), if any, which letters shall be in customary form
and cover matters of the type customarily covered in "cold comfort"
letters by accountants in connection with underwritten offerings, and
(4) deliver such documents and certificates as may be reasonably
requested by the Rightsholders holding a majority of such Registerable
Securities and managing underwriter(s), if any, to evidence compliance
with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company; each such action
required by this Paragraph 10(d)(i)(J) shall be done at each closing
under such underwriting or similar agreement or as and to the extent
required thereunder; and
(K) if requested by the holders of a majority of
the Registerable Securities included in such registration statement,
use its best efforts to cause all Registerable Securities which are
included in such registration statement to be listed, subject to
notice of issuance, by the date of the first sale of such Registerable
Securities pursuant to such registration statement, on each securities
exchange, if any, on which securities similar to the Registered
Securities are listed.
(ii) Obligations of Rightsholders. In connection with any
registration of Registerable Securities of a Rightsholder pursuant to
Paragraph 10(b) or (c) hereof:
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(A) The Company may require that each Rightsholder
whose Registerable Securities are included in such registration
statement furnish to the Company such information regarding the
distribution of such Registerable Securities and such Rightsholder as
the Company may from time to time reasonably request in writing; and
(B) Each Rightsholder, upon receipt of any notice
from the Company of the happening of any event of the kind described
in clauses (2), (3), (5) and (6) of Paragraph 10(d)(i)(C) hereof,
shall forthwith discontinue disposition of Registerable Securities
pursuant to the registration statement covering such Registerable
Securities until such Rightsholder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause (1) of
Paragraph 10(d)(i)(C) hereof, or until such Rightsholder is advised in
writing (the "Advice") by the Company that the use of the applicable
prospectus may be resumed, and until such Rightsholder has received
copies of any additional or supplemental filings which are
incorporated by reference in or to be attached to or included with
such prospectus, and, if so directed by the Company, such Rightsholder
will deliver to the Company (at the expense of the Company) all
copies, other than permanent file copies then in the possession of
such Rightsholder, of the current prospectus covering such
Registerable Securities at the time of receipt of such notice; the
Company shall have the right to demand that such Rightsholder or other
holder verify its agreement to the provisions of this Paragraph 10(d)
(ii)(B) in any Demand Request, Tag-Along Request or Holder Notice of
the Rightsholder or in a separate document executed by the
Rightsholder.
(e) Registration Expenses. All expenses incident to the performance
of or compliance with this Agreement by the Company, including, without
imitation, all registration and filing fees of the Commission, National
Association of Securities Dealers, Inc. and other agencies, fees and expenses
of compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registerable Securities), rating agency fees, printing expenses, messenger
and delivery expenses, internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the fees and expenses incurred in connection with the
listing, if any, of the Registerable Securities on any securities exchange and
fees and disbursements of counsel for the Company and the Company's
independent certified public accountants (including the expenses of any
special audit or "cold comfort" letters required by or incidental to such
performance), Securities Act or other liability insurance (if the Company
elects to obtain such insurance), the fees and expenses of any special experts
retained by the Company in connection with such registration and the fees and
expenses of any other person retained by the Company (but not including any
underwriting discounts or commissions attributable to the sale of
Registerable Securities or other out-of-pocket expenses of the Rightsholders,
or the agents who act on their behalf, unless reimbursement is specifically
approved by the Company) will be borne by the Company. All such expenses are
herein referred to as "Registration Expenses." Notwithstanding the foregoing,
the Company shall not be required to pay for any Registration Expenses of any
Demand Registration if such Demand Request is subsequently withdrawn at the
request of the holders of a majority of the
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Registerable Securities included in such Demand Registration (in which case
all Rightsholders which requested the withdrawal of the Demand Registration
shall bear such expenses pro rata); provided that, if, at the time of such
withdrawal, such Rightsholders have learned of a material adverse change in the
condition, business or prospects of the Company from that known to such
Rightsholders at the time of their Demand Request, such Rightsholders shall not
be required to pay any of such expenses. In either event, if such Rightsholders
pay in full the expenses of such withdrawn Demand Registration, such
Rightsholders shall retain the right to one Demand Registration.
(f) Indemnification: Contribution.
(i) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Rightsholder, its officers and directors and each person who controls such
Rightsholder (within the meaning of the Securities Act), if any, and any
agent thereof against all losses, claims, damages, liabilities and expenses
incurred by such party pursuant to any actual or threatened suit, action,
proceeding or investigation (including reasonable attorney's fees and
expenses of investigation) arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in
the light of the circumstances under which they were made) not misleading,
except insofar as the same arise out of or are based upon, any such untrue
statement or omission based upon information with respect to such
Rightsholder furnished in writing to the Company by such Rightsholder
expressly for use therein.
(ii) Indemnification by Rightsholder. In connection with
any registration statement in which a Rightsholder is participating, each
such Rightsholder will be required to furnish to the Company in writing
such information with respect to such Rightsholder as the Company
reasonably requests for use in connection with any such registration
statement or prospectus, and each Rightsholder agrees to the extent it is
such a holder of Registerable Securities included in such registration
statement, and each other such holder of Registerable Securities included
in such Registration Statement will be required to agree, to indemnify,
to the full extent permitted by law, the Company, the directors and
officers of the Company and each person who controls the Company (within
the meaning of the Securities Act) and any agent thereof, against any
losses, claims, damages, liabilities and expenses (including reasonable
attorney's fees and expenses of investigation incurred by such party
pursuant to any actual or threatened suit, action, proceeding or
investigation arising out of or based upon any untrue or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact necessary, to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they are made)
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is based upon information relating to such
Rightsholder or other holder furnished in writing to the Company expressly
for use therein.
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(iii) Conduct of Indemnification Proceedings. Promptly
after receipt by an indemnified party under this Paragraph 10(f) of written
notice of the commencement of any action, proceeding, suit or investigation
or threat thereof made in writing for which such indemnified party may
claim indemnification or contribution pursuant to this Agreement, such
indemnified party shall notify in writing the indemnifying party of such
commencement or threat; but the omission so to notify the indemnifying
party shall not relieve the indemnifying party from any liability which the
indemnifying party may have to any indemnified party (A) hereunder, unless
the indemnifying party is actually prejudiced thereby, or (B) otherwise
than under this Paragraph 10(f). In case any such action, suit or
proceeding shall be brought against any indemnified party, and the
indemnified party shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein
and the indemnifying party shall assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party, and the obligation to pay
all expenses relating thereto. The indemnified party shall have the right
to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party has agreed to pay such fees and expenses, (B) the
indemnifying party shall have failed to assume the defense of such action,
suit or proceeding or to employ counsel reasonably satisfactory to the
indemnified party therein or to pay all expenses relating thereto or (C)
the named parties to any such action or proceeding (including any impleaded
parties) include both the indemnified party and the indemnifying party and
the indemnified party shall have been advised by counsel that there may be
one or more legal defenses available to the indemnified party which are
different from or additional to those available to the indemnifying party
and which may result in a conflict between the indemnifying party and such
indemnified party (in which case, if the indemnified party notifies the
indemnifying party in writing that the indemnified party elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action or
proceeding on behalf of the indemnified party; it being understood,
however, that the indemnifying party shall not, in connection with any
one such action, suit or proceeding or separate but substantially similar
or related actions, suits or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys at any time
for the indemnified party, which firm shall be designated in writing by the
indemnified party).
(iv) Contribution. If the indemnification provided for in
this Paragraph 10(f) from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses (A) in such proportion as
is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other
or (B) if the allocation provided by clause (A) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the
-17-
<PAGE>
relative fault of the indemnifying party and indemnified party, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and the indemnified parties shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified parties,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable
by a party as a result of the losses, claims, damages. liabilities and
expenses referred to above shall be deemed to include, subject to the
limitation set forth in Paragraph 10(f)(v), any legal or other fees or
expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Paragraph 10(f)(iv) were
determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred
to in clauses (A) and (B) of the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(v) Limitation. Anything to the contrary contained in this
Paragraph 10(f) or in Paragraph 10(g) notwithstanding, no holder of
Registerable Securities shall be liable for indemnification and
contribution payments aggregating an amount in excess of the maximum amount
received by such holder in connection with any sale of Registerable
Securities as contemplated herein.
(g) Participation in Underwritten Registration. No Rightsholder may
participate in any underwritten registration hereunder unless such Rightsholder
(i) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and to comply with Rules 10b-6 and 10b-7 under the Exchange
Act and (ii) completes and executes all questionnaires, appropriate and limited
powers of attorney, escrow agreements, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangement; provided, that all such documents shall be consistent with the
provisions of Paragraph 10(e) hereof.
11. MISCELLANEOUS.
This Warrant Certificate and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This certificate is deemed to have been delivered in the State of New
York and shall be construed and enforced in accordance with and governed by the
laws of such State. The headings in this Warrant Certificate are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
-18-
<PAGE>
12. EXPIRATION.
Unless as hereinafter provided, the right to exercise these
Warrants shall expire at the Expiration Time.
Dated: January 8, 2000
VIZACOM INC.
By: /s/ Mark E. Leininger
Mark E. Leininger, President
ATTEST:
/s/ Marc E. Jaffe
Marc E. Jaffe, Secretary
-19-
<PAGE>
EXERCISE FORM
Dated: ,
---------------- ----
TO: VIZACOM INC.:
The undersigned hereby irrevocably elects to exercise the within
Warrant, to the extent of purchasing _________________ shares of Common Stock,
and hereby makes payment of ____________ in payment of the actual Exercise Price
thereof.
-------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
-------------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
-------------------------------------------------------------
Address:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
--------------------------
Signature:
-------------------------------------------------------------
(Signature must conform in all respects to the name of the
Warrantholder as set forth on the face of this Warrant
Certificate.)
-20-
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED,
---------------------------------------------
(Please type or print in block letters)
hereby sells, assigns and transfers unto:
Name:
----------------------------------------------------------
(Please type or print in block letters)
Taxpayer
Identification
Number:
----------------------------------------------------------
Address:
----------------------------------------------------------
----------------------------------------------------------
----------------------------------------------------------
this Warrant Certificate and the Warrants represented by this Warrant
Certificate to the extent of ________________ Warrants and does hereby
irrevocably constitute and appoint __________________________ Attorney-in-Fact,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Dated:
----------------------
Signature:
----------------------------------------------------------
(Signature must conform in all respects to the name of
the Warrantholder as set forth on the face of this
Warrant Certificate.)
-21-
Distribution and Marketing Agreement
Made July 27, 1999
This letter agreement between Nova Development Corporation ("Nova") and all
Serif subsidiaries of Vizacom Inc. located at 3A Oak Road, Fairfield, NJ 07004
sets forth the terms under which Vizacom will purchase, and make available by
way of its direct marketing efforts, Nova's Art Explosion 250,000 for Windows
software ("Software").
1. Offer: Vizacom may offer the most recent version of the Software in its
various direct mail pieces and as part of its outbound telemarketing program
worldwide except for Australia, Belgium, Israel, Korea, the Netherlands, Sweden,
Turkey, Japan and such other countries as Nova may exclude from time to time
because of exclusive distribution relationships in those countries.
2. Software Specifications: With the exception of the First Delivery, the
Software may be a flat-pack of Nova's Art Explosion 250,000 for Windows software
(i.e., no chipboard box and certain other modifications) and shall not contain
Print Artist, MGI PhotoSuite or AGFA fonts.
3. Term and Termination: This Agreement shall begin as of the date hereof and
continue for a period of one year ("Term"), after which time Vizacom (i) Shall
take delivery of any outstanding units of the Software required to fulfill its
Minimum Commitment as defined in section 6 and (ii) may sell off any Software
which remains in inventory. Either party may terminate this Agreement for
material breach given 30 days notice to cure and for reasons of the other
party's filing for bankruptcy protection or insolvency.
4. Price. The price shall be twenty-three US dollars ($23.00) per unit of the
Software. Prices are FOB Nova's manufacturing facility in City of Industry,
California or Calabasas, California, in Nova's discretion. Nova shall ship
product to Vizacom's US warehouse or other facility from time to time as
directed by Vizacom using the freight forwarder of Vizacom's choice.
5. Terms. For each shipment, pursuant to Vizacom's Delivery Instructions,
Vizacom shall pay Nova for one-half of its order in advance and the other half
within forty-five (45) days of Nova's shipment of the corresponding order.
Notwithstanding the foregoing, Vizacom may pay for the total amount of its First
Delivery within forty-five (45) days. Interest shall accrue on unpaid balances
at the rate of the lesser of (i) 18% per annum or (ii) the maximum rate
allowable by law.
6. Overall Minimum Commitment. Vizacom shall issue a purchase order to Nova
within seven (7) days of the date hereof for 10,000 units of the Software, which
10,000 units shall constitute Vizacom's "Minimum Commitment" during the Term.
Vizacom shall then from time to time transmit to Nova delivery instructions in
connection with that purchase order for no fewer than 1000 units of the Software
at a time ("Delivery Instructions"). If within seven (7) days of the one-year
anniversary of this Agreement, Nova has not received Delivery Instructions for a
total of 10,000 units, Vizacom shall immediately transmit Delivery Instructions
for the remaining units to Nova, and Nova may at Nova's option nonetheless ship
the shortfall quantity of Software to Vizacom.
7. Sales Projections. Vizacom shall use its best efforts to provide Nova with
delivery projections from time to time.
8. Initial Deliveries. Vizacom will issue Delivery Instructions for 195 units of
the Software ("First Delivery"), specifically, 125 units to Vizacom's US
warehouse and 70 to Vizacom's UK warehouse, which Software will differ from the
specifications set forth in Section 2 in that it will be Nova's ordinary retail
build. Within seven (7) days of the date hereof, Vizacom shall also issue
delivery instructions for no fewer than 1000 units of the Software, in
fulfillment of which Nova will begin shipping the Software pursuant to those
specifications set forth in Section 2.
<PAGE>
Distribution and Marketing Agreement
Page2
9. Nova's Duties. Nova shall provide Vizacom with promotional materials and
applicable artwork as requested by Vizacom to aid Vizacom in the development of
the mail piece and use its best efforts to fill orders on a timely basis.
10. Vizacom's Duties. Vizacom shall be solely responsible for development of,
and costs and risks associated with, direct mail advertising, the logistics of
mailing, telemarketing, and fulfillment of orders.
11. Trademark License, Copy Approval Nova hereby grants Vizacom the right to use
its trademarks in the promotion of the Software. Vizacom will give Nova the
opportunity to approve references to the Software made in promoting its offers.
No printing or outbound calls will occur until Nova has approved the piece or
telemarketing script, as the case may be.
12. Returns: Vizacom may, at Vizacom's expense, return Software with actual
physical defects in exchange for replacement product sent back at Nova's
expense. Aside from this limited right to return, all sales are final.
13. Names: As further consideration for the Software, Vizacom shall on a
quarterly basis, or at such other times as Nova may reasonably request, provide
Nova with the names, addresses and e-mail addresses of all buyers of the
Software, in text format on disk. Knowing that a degree of programming will be
required to facilitate this, Vizacom's MIS department will immediately begin
work on setting up such reports so that they can be produced as soon as possible
and in advance of the first quarter's delivery.
14. Limitation of Rights. The rights conveyed in this Agreement are limited to
distribution and marketing rights as set forth herein. No right to manufacture
is granted herein, and no right, title or interest in or to the proprietary
rights in the Software shall vest in Vizacom.
15. Limitation as to Customer. Vizacom shall use its best efforts to sell the
Software only to end-using consumers. No "sideways sales" are permitted (i.e.,
no sales to resellers). Without in any way limiting Nova's other remedies in the
case of such a breach, Vizacom shall pay Nova liquidated damages of one hundred
dollars ($100) per unit of Software sold to resellers.
16. Confidentiality: Terms of this Agreement shall be held in strict
confidence by the parties for a period of 3 years of the date hereof.
17. Miscellaneous: Nova and Vendor are independent contractors; no partnership
or joint venture has been created. This Agreement shall be binding upon and
inure to the benefit of each of the parties to this Agreement and their
respective legal successors and assigns. This Agreement shall be governed by the
laws of the State of California.
In witness whereof, the parties to this Agreement have executed this Agreement
as of the date first set forth above.
Signed Date
--------------------------------- -------------------
for and on behalf of Nova
Signed Date
--------------------------------- -------------------
for and on behalf of Vizacom
VIZACOM INC.
List of Subsidiaries
State or Other Jurisdiction of
Name Incorporation or Organization
Dialogue 24 Limited . . . . . . . . . . . . . . . . . . . . United Kingdom
Dialogue 24 GmbH. . . . . . . . . . . . . . . . . . . . . . Germany
Digital Paper, Inc. . . . . . . . . . . . . . . . . . . . . California
Grafox Limited. . . . . . . . . . . . . . . . . . . . . . . United Kingdom
Junction 15 Limited . . . . . . . . . . . . . . . . . . . . United Kingdom
Precision Software Limited. . . . . . . . . . . . . . . . . United Kingdom
PSL GmbH. . . . . . . . . . . . . . . . . . . . . . . . . . Germany
PWR Systems, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware
Renaissance Multimedia, Inc.. . . . . . . . . . . . . . . . Delaware
Serif (Europe) Limited. . . . . . . . . . . . . . . . . . . England
Serif GmbH. . . . . . . . . . . . . . . . . . . . . . . . . Germany
Serif Inc.. . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Software Publishing Asia Pacific Corporation. . . . . . . . California
Software Publishing Corporation . . . . . . . . . . . . . . Delaware
Software Publishing Corporation Belgium . . . . . . . . . . California
Software Publishing Corporation Europe. . . . . . . . . . . California
Software Publishing Corporation SPC (Italia) s.r.l. . . . . Italy
Software Publishing Corporation Netherlands . . . . . . . . California
Software Publishing Corporation (Scandinavia) AB. . . . . . Sweden
Software Publishing Deutschland GmbH. . . . . . . . . . . . Germany
Software Publishing France, SARL. . . . . . . . . . . . . . France
Software Publishing International Corporation (FSC) . . . . Barbados
Software Publishing Limited . . . . . . . . . . . . . . . . United Kingdom
VisualCities.com Inc. . . . . . . . . . . . . . . . . . . . Delaware
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (a) the Registration Statement
on Form S-8 (No. 333-82959) of Vizacom, Inc. (the "Company") pertaining to the
Company's 1994 Long Term Incentive Plan, (b) the Company's Registration
Statement on Form S-8 (No. 333-82951) pertaining to the Company's Outside
Director and Advisor Stock Option Plan, (c) the Company's Registration Statement
on Form S-8 (No. 333-19059) pertaining to Software Publishing Corporation's 1987
Stock Option Plan, Software Publishing Corporation's 1989 Stock Option Plan and
Software Publishing Corporation's 1991 Stock Option Plan, (d) the Company's
Registration Statement on Form S-3 (No. 333-55677) pertaining to 2,107,712
shares of the Company's Common Stock and 29,267 options to purchase shares of
the Company's Common Stock, (e) the Company's Registration Statement on Form S-3
(No. 333-80181) pertaining to 3,375,877 shares of the Company's Common Stock and
167,052 warrants to purchase shares of the Company's Common Stock and (f) the
Company's Registration Statement on Form S-3 (No. 333-93087) pertaining to
1,938,191 shares of the Company's Common Stock, of our report dated March 27,
2000 with respect to our audit of the financial statements of the Company and
our report dated March 20, 2000 with respect to our audit of the financial
statements of Renaissance Computer Art Center, Inc., included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999, filed with
the Securities and Exchange Commission.
Our report dated March 27, 2000 with respect to our audit of the financial
statements of the Company contains an explantory paragraph regarding a Federal
income tax matter described in Note 8 to the financial statements.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
April 14, 2000
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333- 82959) of Vizacom, Inc. (the "Company") pertaining to the Company's
1994 Long Term Incentive Plan, the Company's Registration Statement (Form S-8
No. 333-82951) pertaining to the Company's Outside Director and Advisor Stock
Option Plan, the Company's Registration Statement (Form S-8 No. 333-19059)
pertaining to Software Publishing Corporation Holdings, Inc.'s 1987 Stock Option
Plan, Software Publishing Corporation Holdings, Inc.'s 1989 Stock Option Plan
and Software Publishing Corporation Holdings, Inc.'s 1991 Stock Option Plan, the
Company's Registration Statement (Form S-3 No. 333-55677) pertaining to
2,107,712 shares of the Company's Common Stock and 29,267 options to purchase
shares of the Company's Common Stock, the Company's Registration Statement (Form
S-3 No. 333-80181 pertaining to 3,375,877 shares of the Company's Common Stock
and 167,052 warrants to purchase shares of the Company's Common Stock and the
Company's Registration Statement (Form S-3 No. 333-93087) pertaining to
1,938,191 shares of the Company's Common Stock, of our Report dated March 27,
2000 with respect to the financial statements of Serif (Europe) Limited,
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999, filed with the Securities and Exchange Commission.
/s/Ernst & Young
Ernst & Young
Nottingham, England
April 13, 2000
To the Directors
Junction 15 Limited
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the,
(a) Registration Statement on Form S-8 (No. 333-82959) of Vizacom Inc. (the
"Company") pertaining to the Company's 1994 Long Term Incentive Plan,
(b) Registration Statement on Form S-8 (No. 333-82951) of the Company
pertaining to the Company's Outside Director and Advisor Stock Option Plan,
(c) Registration Statement on Form S-8 (No. 333-19059) of the Company pertaining
to the Software Publishing Corporation's 1987 Stock Option Plan, Software
Publishing Corporation's 1989 Stock Option Plan and Software Publishing
Corporation's 1991 Stock Option Plan,
(d) Registration Statement on Form S-3 (No. 333-55677) of the Company pertaining
to 2,107,712 shares of the Company's common stock and 29,267 options to purchase
shares of the Company's common stock,
(e) Registration Statement on Form S-3 (No. 333-80181) of the Company pertaining
to 3,375,877 shares of the Company's common stock and 167,052 warrants to
purchase shares of the Company's common stock and
(f) Registration Statement on Form S-3 (No. 333-93087) pertaining to
1,938,191 shares of the Company's common stock,
of our report, dated April 4, 2000 with respect to the financial statements of
Junction 15 Limited included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999, filed with the Securities and Exchange
Commission.
/s/ Silver Levene
Silver Levene
Chartered Certified Accountants
Registered Auditors
London, United Kingdom
April 13, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 199 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,730,495
<SECURITIES> 2,746,678
<RECEIVABLES> 1,167,700
<ALLOWANCES> 434,290
<INVENTORY> 1,457,604
<CURRENT-ASSETS> 7,194,739
<PP&E> 1,746,400
<DEPRECIATION> 918,292
<TOTAL-ASSETS> 10,474,971
<CURRENT-LIABILITIES> 6,541,765
<BONDS> 198,675
0
0
<COMMON> 7,236
<OTHER-SE> 3,727,395
<TOTAL-LIABILITY-AND-EQUITY> 10,474,971
<SALES> 19,891,357
<TOTAL-REVENUES> 19,891,357
<CGS> 6,371,106
<TOTAL-COSTS> 6,371,106
<OTHER-EXPENSES> 1,027,447
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,622
<INCOME-PRETAX> (5,877,480)
<INCOME-TAX> (250,978)
<INCOME-CONTINUING> (5,626,502)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,683,143)
<EPS-BASIC> (.95)
<EPS-DILUTED> (.95)
</TABLE>
