As filed with the Securities and Exchange Commission on March 4, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ENTERACTIVE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-3272662
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
110 West 40th Street, Suite 2100
New York, New York 10018
(212) 221-6559
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(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Mr. Andrew Gyenes
Enteractive, Inc.
110 West 40th Street, Suite 2100
New York, New York 10018
(212) 221-6559
(Name, address and telephone number of agent for service of process)
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Copies to:
Steven Wolosky, Esq.
Kenneth A. Schlesinger, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
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Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. o
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Title of Each Class Maximum Aggregate
of Securities Amount To Be Offering Price Offering Amount of
To Be Registered Registered Per Security Price(1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,838,701 $2.375(1) $4,366,914.875 $1,323.31
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Common Stock, $.01 par value, issuable upon the
exercise of certain options (the "Options")(2) 682,000(2) $2.39(3) $1,632,200 $494.61
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Common Stock, $.01 par value, issuable upon 4,200,000
conversion of certain shares of Class A Convertible
Preferred Stock (the "Convertible Preferred Stock")(2) $2.375(1) $9,975,000 $3,022.73
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Common Stock, $.01 par value, issuable upon exercise
of certain warrants (the "1996 Warrants")(2) 4,200,000 $4.00(4) $16,800,000 $5,090.91
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1996 Warrants 4,200,000 -- -- --
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Total.............................................................................................$9,931.56
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee based
upon the average of the high and low price of the Common Stock on the
Nasdaq Stock Market on February 27, 1997.
(2) Pursuant to Rule 416, additional securities are being registered as may be
required for issuance pursuant to the anti-dilution provisions of the
Options, the Convertible Preferred Stock and the 1996 Warrants.
(3) Pursuant to Rule 457(g), the registration fee for the Common Stock
underlying the Options is calculated on the basis of the average exercise
price of the Options.
(4) Pursuant to Rule 457(g), the registration fee for the Common Stock
underlying the 1996 Warrants is calculated on the basis of the exercise
price of the 1996 Warrants.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 4, 1997
PRELIMINARY PROSPECTUS
16,992,169 Shares of Common Stock
4,200,000 Warrants
ENTERACTIVE, INC.
Common Stock ($.01 par value)
This Prospectus relates to the reoffer and resale by certain selling
shareholders (the "Selling Shareholders") of an aggregate of 16,992,169 shares
(the "Shares") of the Common Stock, $.01 par value per share (the "Common
Stock"), of Enteractive, Inc., a Delaware corporation (the "Company") of which
(i) 682,000 shares of Common Stock (the "Option Shares") are issuable upon
exercise of certain options (the "Options") which were granted by the Company in
connection with consulting services; (ii) 340,000 shares of Common Stock (the
"1994 Warrant Shares") are issuable by the Company upon exercise of certain
warrants (the "January 1994 Warrants") which were issued in connection with a
private placement in January 1994; (iii) 5,121,468 shares of Common Stock (the
"Common Stock Warrant Shares") are issuable by the Company upon the exercise of
publicly-traded warrants ("Common Stock Purchase Warrants"); (iv) 200,000 shares
of Common Stock (the "Purchase Option Shares") are issuable by the Company upon
the exercise of certain unit purchase options (the "Purchase Options")
previously issued by the Company to GKN Securities Corp., or its designees, the
underwriter of the Company's Initial Public Offering (the "Underwriter"); (v)
200,000 shares of Common Stock (the "Purchase Option Warrant Shares") are
issuable to the Underwriter upon exercise of the Purchase Option Warrants
(hereinafter defined), which Purchase Option Warrants are issuable upon exercise
of the Purchase Options; (vi) 4,200,000 shares of Common Stock (the "Conversion
Shares") are issuable by the Company upon conversion of certain shares of Class
A Convertible Preferred Stock (the "Convertible Preferred Stock") which were
issued by the Company to holders (the "Preferred Stockholders") in connection
with the Company's December 1996 Private Placement (the "1996 Private
Placement"); (vii) 4,200,000 shares of Common Stock (the "1996 Warrant Shares")
are issuable by the Company upon exercise of certain warrants (the "1996
Warrants") granted by the Company to the Preferred Stockholders in connection
with the 1996 Private Placement; (viii) 210,000 shares of Common Stock (the
"Secondary Offering Option Shares") are issuable by the Company upon the
exercise of the Underwriter's Common Stock Purchase Option (the "Secondary
Option") granted to the Underwriter, or its designees, in connection with the
Company's secondary public offering consummated in May 1996 ("Secondary
Offering") (ix) 953,237 shares of Common Stock (the "Secondary Shares") which
were previously issued by the Company to certain employees or former officers
and employees of the Company who in turn sold such Secondary Shares to certain
of the Selling Shareholders and (x) 885,464 shares of Common Stock (the
"Employee Shares") issued to certain employees or former employees of either the
Company, predecessors of the Company, or Lyriq International Corp. ("Lyriq").
This Prospectus also relates to 200,000 warrants (the "Purchase Option
Warrants") which are issuable to the Underwriter by the Company upon exercise of
the Purchase Options and 4,200,000 1996 Warrants which were granted to the
Preferred Stockholders in connection with the 1996 Private Placement. See
"Principal and Selling Stockholders," "Plan of Distribution" and "Description of
Securities."
The Option Shares, the 1994 Warrant Shares, the Common Stock Warrant
Shares, the Purchase Option Shares, the Purchase Option Warrant Shares, the
Conversion Shares, the 1996 Warrant Shares, and the Secondary Offering Option
Shares will be issued if, as and when the Options, the January 1994 Warrants,
the Common Stock Purchase Warrants, the Purchase Options, the Purchase Option
Warrants, the Convertible Preferred Stock, the 1996 Warrants and the Secondary
Option (which such Option Shares, 1994 Warrant Shares, Common Stock Warrant
Shares, Purchase Option Shares, Purchase Option Warrant Shares, Conversion
Shares, 1996 Warrant Shares and Secondary Offering Option Shares underlie,
respectively), are exercised or converted, as the case may be, by the holders
thereof. The Company will receive the proceeds from the exercise of the Options,
the January 1994 Warrants, the Common Stock Purchase Warrants, the Purchase
Options, the Purchase Option Warrants, the 1996 Warrants and the Secondary
Offering Options, the net proceeds of which will amount to $42,786,672 if all
options, January 1994
<PAGE>
Warrants, Common Stock Purchase Warrants, Purchase Options, Purchase Option
Warrants, 1996 Warrants, and Secondary Options are exercised, after deducting
the estimated expenses of this offering. The Company will not receive any
proceeds from the resale of the Shares by the Selling Shareholders or upon the
conversion of the Convertible Preferred Stock.
The Company's Common Stock is publicly traded on the Nasdaq Stock Market
("Nasdaq") under the symbol ("ENTR") and on the Boston Stock exchange under the
symbol ("ENT"). On February 27, 1997, the last sales price of the Common Stock
on Nasdaq was $2.375.
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AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK AND SHOULD ONLY BE MADE BY INVESTORS
WHO CAN AFFORD THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" AND "DILUTION" ON PAGES 7 AND 15 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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This offering is self-underwritten; neither the Company nor any Selling
Shareholder has employed an underwriter for the resale of any of the Shares or
the Purchase Option Warrants or the 1996 Warrants. The Company will bear all
expenses of this Offering other than discounts, concessions or commissions on
the resale of the Shares and the Purchase Option Warrants or the 1996 Warrants.
The Selling Shareholders have advised the Company that the resale of
their Shares may be effected from time to time in one or more transactions in
the over-the-counter market or the Boston Stock Exchange, in negotiated
transactions or otherwise at market prices prevailing at the time of the sale or
at prices otherwise negotiated. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). Any broker-dealer acquiring the Shares from the Selling
Shareholders may sell such securities in its normal market making activities,
through other brokers on a principal or agency basis, in negotiated
transactions, to its customers or through a combination of such methods. Upon
the exercise of the Purchase Options, the Purchase Warrants will be publicly
traded along with the Common Stock Purchase Warrants and may be acquired in the
same manner as the Shares. To date, the 1996 Warrants are not publicly-traded.
See "Plan of Distribution."
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The date of this Prospectus is March , 1997
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed by the Company with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-KSB for the fiscal
year ended May 31, 1996.
(b) The Company's Quarterly Reports on Form 10-QSB for the
fiscal quarters ended August 31, 1996 and November 30, 1996.
(c) The Company's Current Report on Form 8-K dated December
19, 1996.
(d) The description of the Company's Common Stock contained in
the Company's Registration Statement on Form 8-A filed with the
Commission on September 28, 1994.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this Offering of the Shares of Common Stock or the
Purchase Option Warrants offered hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits to such documents which are not specifically incorporated by reference
in such documents). Written requests for such copies should be directed to Mr.
Kenneth Gruber, Chief Financial Officer, 110 West 40th Street, Suite 2100, New
York, New York 10018, telephone number (212) 221-6559.
The Company intends to furnish its shareholders with annual reports
containing financial statements audited and reported upon by its independent
accounting firm, quarterly reports containing unaudited interim financial
information and such other periodic reports as the Company may determine to be
appropriate or as may be required by law.
This Prospectus includes references to trademarks of entities other
than the Company which have reserved all rights with respect to their respective
trademarks.
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<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE. EACH
PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. THERE ARE
CURRENTLY 6,720 SHARES OF CONVERTIBLE PREFERRED STOCK ISSUED AND OUTSTANDING.
THE HOLDERS OF THE CONVERTIBLE PREFERRED STOCK HAVE THE RIGHT, AT THE HOLDER'S
OPTION, AT ANY TIME AFTER APRIL 30, 1998, OR FROM TIME TO TIME THEREAFTER, TO
CONVERT EACH SHARE OF CONVERTIBLE PREFERRED STOCK INTO SUCH WHOLE NUMBER OF
SHARES OF COMMON STOCK EQUAL TO THE AGGREGATE STATED VALUE ($1,250) OF THE
CONVERTIBLE PREFERRED STOCK TO BE CONVERTED DIVIDED BY THE LESSER OF (I) $2.00
OR (II) 50% OF THE AVERAGE CLOSING SALE PRICE FOR THE COMMON STOCK FOR THE LAST
TEN TRADING DAYS IN THE FISCAL QUARTER OF THE COMPANY PRIOR TO SUCH CONVERSION.
ALL INFORMATION HEREIN ASSUMES THAT THE STATED VALUE OF THE CONVERTIBLE
PREFERRED STOCK WILL BE DIVIDED BY $2.00 AND ACCORDINGLY, THIS PROSPECTUS HAS
BEEN PREPARED ON THE BASIS THAT 4,200,000 SHARES OF COMMON STOCK MAY BE ISSUED
UPON THE CONVERSION OF THE CONVERTIBLE PREFERRED STOCK. SEE "DESCRIPTION OF
SECURITIES--CONVERTIBLE PREFERRED STOCK" FOR A FURTHER DESCRIPTION OF THE
CONVERTIBLE PREFERRED STOCK.
THE COMPANY
Enteractive, Inc., a Delaware corporation (the "Company"),
headquartered in New York, New York, provides internet services to companies
seeking to establish or expand their internet or intranet presence and publishes
multimedia titles to the home. Its address is 110 West 40th Street, Suite 2100,
New York, New York 10018 and its telephone number is (212) 221-6559. Its
Worldwide Web site address is http://www.enteractive.com.
RECENT DEVELOPMENTS
On December 4, 1996, the Company entered into an agreement (the
"Enteractive Affiliates Agreement") with USWeb Corporation ("USWeb") pursuant to
which the Company has agreed to become a franchisee of USWeb and a member of
USWeb's network of independent affiliates (the "USWeb Network"). Under the
Affiliates Agreement, the Company paid $625,000 for the right to operate USWeb
affiliate offices in certain localities as provided below. USWeb is a new
venture which has raised $17 million to date, including $13 million from
Softbank, which owns Comdex and Ziff-Davis Publishing, to provide service to
corporations establishing a presence on the World Wide Web. USWeb is seeking to
capitalize on the service opportunities presented by the increasing use of the
Internet and intranets as commercial tools. The Company has formed a subsidiary,
Enteractive Network Solutions Inc. doing business as USWeb Cornerstone, which is
intended to provide a full range of Internet and Intranet-based business
solutions, including Website design, hosting and management, design and
implementation of database and e-commerce solutions, educational programs and
Web-related strategic consulting and marketing.
USWeb is required to obtain regulatory approval under applicable
franchise laws with respect to the Enteractive Affiliates Agreement and the
activities contemplated thereby. Over the next six months, Enteractive intends
to establish a USWeb Affiliate office in New York and, subject to regulatory
approval, has been granted exclusive rights to develop new USWeb Affiliate
offices in Long Island (Nassau-Suffolk County), Philadelphia, Baltimore,
Stamford, CT, and Bergen County and Newark, N.J. The exclusive rights granted to
the Company are subject to certain minimum performance standards set forth in
the Enteractive Affiliates Agreement. If the Company is unable to meet these
minimum performance standards, its exclusive rights may be terminated and it may
be liable for monetary payment. The Company retains the right to rescind,
without penalty, if the final form of the Enteractive Affiliates Agreement
contains any material variation less advantageous to the Company.
On December 12, 1996, the Company received approximately $7,872,000 in
net proceeds from the consummation of the 1996 Private Placement whereby the
Company issued the Convertible Preferred Stock and granted the 1996 Warrants.
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<PAGE>
In January 1997, as a result of agreements among the Company, certain
former employees and the Underwriter, the Company repaid $475,800 of its long
term debt plus related accrued interest.
THE OFFERING
Securities Offered by the Company........... 200,000 Purchase Option Warrants
issuable upon exercise of the
Purchase Options. 682,000 Option
Shares; 340,000 1994 Warrant
Shares; 5,121,468 Common Stock
Warrant Shares; 200,000 Purchase
Option Shares; 200,000 Purchase
Option Warrant Shares; 4,200,000
Conversion Shares; 4,200,000 1996
Warrant Shares and 210,000
Secondary Offering Option Shares.
Securities Offered for resale
by the Selling Shareholders................. 953,237 Secondary Shares, 885,464
Employee Shares and 4,200,000
1996 Warrants.
Common Stock Outstanding.................... 7,679,4411 shares of Common Stock
before the exercise or
conversion, as the case may be,
of the Options, January 1994
Warrants, Common Stock Purchase
Warrants, Purchase Options,
Purchase Option Warrants,
Convertible Preferred Stock, 1996
Warrants and Secondary Options,
and 22,832,909 shares of Common
Stock assuming the exercise or
conversion, as the case may be,
of the Options, January 1994
Warrants, Common Stock Purchase
Warrants, Purchase Options,
Purchase Option Warrants,
Convertible Preferred Stock, 1996
Warrants and Secondary Options.
Symbol..................................... Common Stock: ENTR
Common Stock Purchase Warrants:
ENTRW
Boston Stock Exchange Symbol............... Common Stock: ENT
Common Stock Purchase Warrants:
ENTW
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1 Does not include (i) 1,500,000 shares of Common Stock reserved for issuance
upon exercise of stock options which may be granted under the Company's 1994
Incentive and Non-Qualified Stock Option Plan ("1994 Plan"), of which options
to purchase 1,108,310 shares of Common Stock have been granted; (ii)
1,000,000 shares of Common Stock reserved for issuance upon exercise of stock
options which may be granted under the Company's 1994 Consultant Stock Option
Plan ("Consultant Plan"), of which options to purchase 333,330 shares of
Common Stock have been granted; (iii) 150,000 shares of Common Stock reserved
for issuance under the Company's 1995 Directors Stock Option Plan ("Directors
Plan"), of which options to purchase 45,000 shares of Common Stock have been
granted; (iv) 682,000 shares of Common Stock reserved for issuance upon
exercise of certain other outstanding non-qualified stock options; (v)
340,000 shares of Common Stock reserved for issuance upon exercise of the
January 1994 Warrants; (vi) 5,124,468 shares of Common Stock reserved for
issuance upon the exercise of the Common Stock Purchase Warrants; (vii)
200,000 shares of Common Stock reserved for issuance upon the exercise of the
Purchase Option; (viii) 200,000 shares of Common Stock reserved for issuance
upon exercise of the Purchase Warrants; and (ix) 210,000 shares of Common
Stock reserved for issuance upon the exercise of the Secondary Option; (x)
4,200,000 shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock; and (xi) 4,200,000 shares of Common Stock issuable upon
exercise of the 1996 Warrants.
-5-
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the resale of the Common
Stock offered by the Selling Shareholders hereby or for the conversion of the
Convertible Preferred Stock . The Company will receive the proceeds from the
exercise of each of Options, January 1994 Warrants, Common Stock Purchase
Warrants, Purchase Options, Purchase Option Warrants, 1996 Warrants and
Secondary Options. The net proceeds of which will amount to $42,786,672 if all
such securities are exercised, after deducting the estimated expenses of this
offering. The Company must use any of the proceeds it receives from the exercise
of the Common Stock Purchase Warrants, which could amount to $20,485,872 in the
aggregate, for the redemption of the Convertible Preferred Stock at a redemption
price equal to 1.1 multiplied by the Stated Value ($1,250). The balance of any
proceeds received from the exercise of the Common Stock Purchase Warrants, or
any other proceeds received by the Company in the Offering, will be used for
expanding the Company's internet services business and title publishing.
-6-
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS
WELL AS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
GENERAL RISKS AND RISKS RELATED TO CURRENT FINANCIAL CONDITION
History of Losses; Change in Strategy; Continuing Net Losses;
Accumulated Deficit. The Company has incurred significant losses. At the end of
1994, the Company shifted its focus from being primarily a provider of product
development services for others to being a developer and publisher of titles in
which the Company maintains a significant ownership interest and, in many cases,
distribution rights. However, the Company continues to incur significant losses.
For the six months ended November 30, 1996 and the year ended May 31, 1996, the
Company had net losses of $3,503,400 and $10,404,700, respectively. The Company
had an accumulated deficit of $18,222,200 as of November 30, 1996. In July 1996,
the Company announced a restructuring whereby certain members of its management
resigned and certain fixed costs were reduced as a result of the Company's
decision to focus its efforts on recreation and entertainment products.
Subsequently, the Company decided to capitalize on its expertise in on-line and
internet development to provide on-line and internet web-site development and
network solutions for corporations. Nevertheless, the Company expects that
losses will increase and continue until such time, if ever, as the Company can
profitably develop, produce and distribute a successful line of interactive
multimedia titles or profitably deliver network solutions, services and
products.
Dependence on Management; Need to Attract Additional Personnel. The
Company is dependent upon the business and technical expertise of its executive
and creative personnel. In particular, the loss of the services of Andrew
Gyenes, the Chairman of the Board and Chief Executive Officer, could have a
material adverse effect upon the Company. The Company has an employment
agreement with Mr. Gyenes which expires in October 1997. The Company has
obtained a "key person" insurance policy on the life of Mr. Gyenes in the amount
of $1,000,000 under which the Company is the beneficiary. In addition, the
ability to attract and retain highly trained executives and professionals with
background experience and knowledge of the Internet, intranet and other new
media platforms is critical to the success of the Company. The Company's ability
to develop its businesses will depend upon its ability to recruit and retain
additional personnel, including engineering, marketing and management personnel.
Competition for qualified personnel is intense and accordingly, there can be no
assurance that the Company will be able to retain or hire all of the necessary
personnel or that the Company may not otherwise need to change its personnel to
compete in its rapidly changing market.
Limited Working Capital; Possible Need for Additional Financing;
Uncertainty of Capital Funding. As of November 30, 1996, the Company had cash
and cash equivalents of $1,278,400. In December 1996, the Company consummated
the 1996 Private Placement and received approximately $7,872,000 in net
proceeds. In January 1997 the Company repaid $475,800 of its long term debt plus
accrued interest. The Company expects that its existing capital resources will
enable it to undertake the Company's new strategy and to maintain its current
operations for the next 18 months. However, based on management's assessment of
the future marketability of its titles and demand for Web related services, the
Company may significantly alter the level of expenses both within the next 18
months and thereafter. Moreover, these funds may not be sufficient to meet the
Company's longer term cash requirements for operations. The Company may also be
required to obtain additional financing to continue to operate its business. The
Company does not currently have a line of credit. There can be no assurance that
any additional financing, if required, will be available to the Company on
acceptable terms, if at all. Any inability by the Company to obtain additional
financing, if required, will have a material adverse effect on the operations of
the Company.
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<PAGE>
RISKS RELATED TO DESIGNING, DEVELOPING, INSTALLING, MAINTAINING AND HOSTING
CORPORATE WEB SITES
Developing Market For Providing Network Solutions, Products and
Services; New Entrants, USWeb Relationship. A portion of the Company's future
growth is dependent to a significant extent upon its ability to derive revenue
from sales to its customers of its "network related products and services,"
which the Company defines as designing, developing, installing, maintaining and
hosting corporate web sites and networks for internal communications as well as
external commerce. The market for designing, developing, installing, maintaining
and hosting corporate web sites and networks has only recently begun to develop,
is rapidly evolving, highly competitive, and is characterized by an increasing
number of market entrants who have introduced or developed products and services
for communication and commerce. Demand and market acceptance for such services
are subject to a high level of uncertainty and there can be no assurance that
commerce and communication through such services will continue to grow. In
connection with this new strategy, the Company has entered into an agreement
with US Web whereby it is a franchisee in a new franchise with no known
comparable franchise model and where the market for such franchise is untested.
USWeb has had limited experience as a franchisor and the Company has no previous
experience as a franchisee and the future success of the Company will be
dependent in part on the overall success of the US Web Network, of which there
can be no assurance. While the Company believes that it can generate revenues as
a franchisee, there can be no assurance that it can generate revenues or become
profitable in the future. Finally, under the terms of the franchise agreement,
the Company can only serve certain territories and there can be no assurance
that the Company will be able to obtain additional franchises or serve
additional territories in the future.
Internet Services Competition; Low Barriers to Entry. The market for
the Company's web site related services is highly competitive. The Company faces
competition from national and regional advertising agencies, specialized and
integrated marketing communication firms as well as sole proprietorships and
small businesses in the computer network solutions industry. The Company expects
that new competitors that either provide integrated or specialized services
(e.g., corporate identity and packaging, advertising services or World Wide Web
site design) and are technologically proficient, will emerge and will be
competing with the Company. Many of the Company's competitors or potential
competitors have longer operating histories, longer client relationships and
significantly greater financial, management and other resources than the
Company. Although only a few of these competitors have to date offered a full
range of Internet and Intranet development and maintenance services, several
have announced their intention to offer comprehensive Internet and Intranet
solutions. Furthermore, most of the Company's current and potential competitors
have longer operating histories, larger installed customer bases, longer
relationships with customers and significantly greater financial, technical,
marketing and public relations resources than the Company and could decide to
increase their resource commitments to the Company's market. In addition, many
of the Company's competitors have lower overhead, more technical expertise and
more advanced technology. To the extent that existing competitors or new
competitors cause the Company to lose clients, the Company's business, financial
condition and operating results could be materially adversely affected.
Additionally, the Company has no significant proprietary technology that would
preclude or inhibit competitors from entering the integrated marketing
communication solutions market. The Company intends to compete on the basis of
price and the quality of its services. In addition, the market for Internet and
Intranet development is relatively new and subject to continuing definition,
and, as a result, the core business of certain competitors may better position
them to compete in this market as it matures. Competition of the type described
above could materially adversely affect the Company's business, results of
operations and financial condition. There can be no assurance that existing or
future competitors will not develop or offer marketing communication services
and products that provide significant performance, price, creative or other
advantages over those offered by the Company, which could have a material
adverse effect on the Company's business, financial condition and operating
results.
Uncertain Adoption of the Internet and Intranet as a Medium of Commerce
and Communications; Dependence on the Internet and Intranet. The Company's
ability to derive revenues from providing web-related and network solutions will
depend in part upon industry demand for Internet and Intranet services and the
type and quality of infrastructure for providing Internet and Intranet access
and carrying Internet and Intranet traffic. The Internet and Intranet may not
become efficient, viable commercial marketplaces because of issues such as,
among other things, security, reliability, cost, ease of use and access, and
quality of service, and because of inadequate
-8-
<PAGE>
development of the necessary solutions infrastructure, such as a reliable
computer network or timely development of complementary products, such as high
speed modems. If the necessary infrastructure or complementary products are not
developed or the Internet and Intranet do not become efficient, viable
commercial marketplaces, the Company's business, financial condition and
operating results could be materially adversely affected. Furthermore, even if
the Internet and Intranet become efficient, viable commercial marketplaces,
there can be no assurance that businesses will elect to outsource Web site and
Intranet development and maintenance services. If such services prove to be
unreliable, ineffective or too expensive, or if software companies develop tools
sufficiently user-friendly and cost-effective for nonprofessionals to use,
enterprises may choose to develop and maintain all or part of their Web sites or
Intranets in-house.
Management of Growth. The rapid execution necessary for the Company to
exploit the market for its business model requires an effective planning and
management process. The Company's rapid growth has placed, and is expected to
continue to place, a significant strain on the Company's managerial, operational
and financial resources. The Company expects that continued hiring of new
personnel will be required to support its business. To manage its growth, the
Company must continue to implement and improve its operational and financial
systems and to expand, train and manage its employee base. There can be no
assurance that the Company's systems, procedures or controls will be adequate to
support the Company's operations or that the Company's management will be able
to achieve the rapid execution necessary to exploit the market for the Company's
business model. The Company's future operating results will also depend on its
ability to expand its Technology Services, Marketing and Affiliate Operations
organizations. If the Company is unable to manage growth effectively, the
Company's business, results or operations and financial condition will be
materially adversely affected.
Uncertain Acceptance and Maintenance of USWeb Brand. The Company
believes that establishing and maintaining the USWeb brand is a critical aspect
of its efforts to attract customers and that the importance of brand recognition
will increase due to the increasing number of companies entering the market for
Internet and Intranet service provision. Promotion of the USWeb brand will
depend largely on the success of USWeb's marketing and the ability of the
Company and other USWeb affiliates to provide high quality, reliable and cost
effective Web site and Intranet design, development and maintenance services.
Furthermore, in order to promote the USWeb brand in response to competitive
pressures, the Company may find it necessary to increase its marketing budget or
otherwise increase its financial commitment to creating and maintaining brand
loyalty among customers. If USWeb fails to promote and maintain its brand, or
incurs excessive expenses in an attempt to promote and maintain its brand, the
Company's business, results of operations and financial condition will be
materially adversely affected.
Risks Associated with Acquisitions. As part of its business strategy,
the Company expects to make acquisitions of, or significant investments in,
businesses that currently offer complementary web site and network solution
related services, products and technologies. Any such future acquisitions or
investments would be accompanied by the risks commonly encountered in
acquisitions of businesses. Such risks include, among other things, the
difficulty of assimilating the operations and personnel of the acquired
businesses, the potential disruption of the Company's ongoing business, the
inability of management to maximize the financial and strategic position of the
Company through the successful incorporation of acquired personnel and clients,
the maintenance of uniform standards, controls, procedures and policies and the
impairment of relationships with employees and clients as a result of any
integration of new management personnel. The Company expects that future
acquisitions, if any, could provide for consideration to be paid in cash, stock
or a combination of cash and stock. There can be no assurance that any of these
acquisitions will be consummated. If an entity is acquired by the Company and
such entity is not efficiently or completely integrated with the Company, then
the Company's business, financial condition and operating results could be
materially adversely affected.
-9-
<PAGE>
RISKS RELATED TO DEVELOPING AND PUBLISHING INTERACTIVE MULTIMEDIA PRODUCTS
Rapid Technological Change; Competing Computer Platforms; Emphasis on
CD-ROM. The market for recreational and entertainment multimedia titles is
subject to frequent and rapid changes in technology resulting in short title
life cycles and rapid price declines. The Company's success is dependent upon,
among other things, the ability of the Company to achieve and maintain
technological expertise and to continue to introduce quality titles by
anticipating and reacting to new technologies. The titles released by the
Company in 1996 have been for CD-ROM. Titles currently being developed by the
Company are for the CD-ROM, the Internet or commercial on-line platforms, which
the Company believes are currently the dominant platforms in the industry. There
can be no assurance, however, that such platforms will continue to be the
dominant industry platforms or that the Company will successfully integrate its
products into the Internet or commercial on-line platforms. While the Company
anticipates developing titles for other platforms that achieve market
acceptance, because the development of titles for a new platform, as well as the
migration of a title from one platform to another, is time consuming and
expensive, a leveling off or decline in CD-ROM, the Internet or commercial
on-line services or any subsequent change in the dominant industry platforms
could have a material adverse effect on the Company. In addition, uncertainty
over which platform will become dominant may impede product sales, and the
emergence of a dominant platform other than CD-ROM, the Internet or commercial
on-line services could severely reduce sales of the Company's titles. The
Company's success in marketing its titles will depend upon its ability to
anticipate and respond to trends in the emergence of these platforms.
Dependence on New Titles; Short Title Life Cycles; Market Acceptance.
The nature of the interactive multimedia publishing industry is such that a
significant number of titles will be unprofitable and that the revenues derived
from the successful titles will be used to cover the costs of the unprofitable
titles. The Company's success depends on the timely introduction of successful
new titles and sequels or updates to existing titles to replace declining
revenues from older titles. The life cycle of a successful title is difficult to
predict and may be as short as three months. In addition, each title is an
individual artistic work and its commercial success is primarily determined by
consumer taste, which is unpredictable and constantly changing. Few consumer
software products achieve sustained market acceptance. The Company believes that
a title achieves market acceptance if it is widely purchased by consumers. There
can be no assurance that any of the Company's new titles will achieve market
acceptance or that, if accepted, such acceptance will be sustained for a period
long enough to recoup costs or realize profits. If market acceptance is not
sustained, the Company may be required to write-down unsold excess inventory
and/or accept substantial product returns to maintain its access to distribution
channels and accordingly, the Company's results of operations could be
materially adversely affected.
Marketing and Distribution Arrangements; Competition for Shelf Space.
The Company generally sells its titles to distributors who then distribute such
titles to retailers or sell its titles directly to retailers. These distributors
typically can return the Company's product at any time for credit without an
offsetting order. Accordingly, the Company may experience substantial product
returns which could have a material adverse affect on its revenues. Since
retailers typically have a limited amount of shelf space and promotional
resources and there is intense competition among multimedia software producers,
there can be no assurance that the Company will gain adequate levels of shelf
space and promotional support for its titles to generate sales volume. Due to
increased competition for limited shelf space, retailers and distributors are
increasingly in a better position to negotiate favorable terms of sale,
including price discounts and product return policies. The Company may be
competing in distribution against much larger organizations with more influence
over retailers and distributors and greater marketing and distribution
resources. In addition, other types of retail outlets and methods of product
distribution, such as Internet or on-line services, will become increasingly
important and accordingly, the success of the Company will depend on its ability
to gain access to these channels of distribution. There can be no assurance that
the Company will be successful in the development of its distribution networks
or gain such access, and if the Company is unsuccessful in such development it
will have a material adverse effect on the results of operations of the Company.
Software Competition. The home recreation and entertainment software
industry is intensely competitive, and market acceptance for the Company's
titles may be adversely affected by the introduction of similar titles by
competitors. The Company competes against a large number of other companies of
varying sizes and resources. Many of these competitors have substantially
greater financial, technical and marketing resources than the Company
-10-
<PAGE>
and may be more successful in securing shelf space for their titles. Existing
competitors may continue to broaden their product lines and new competitors,
including large computer or software manufacturers, entertainment companies and
educational publishers, are entering or increasing their focus on the home
recreation and entertainment markets, resulting in increased competition for the
Company. Increased competition may result in loss of shelf space for the
Company's titles at retail stores, loss of or difficulty in recruiting key
employees and significant price competition, any of which could adversely affect
the Company's operating results. The Company also faces intense competition for
a finite amount of discretionary consumer spending for other forms of
entertainment offered by film companies, record companies, video companies and
others.
Seasonal Business; Quarterly Fluctuations. The home recreation and
entertainment software business is highly seasonal. Typically, net revenues are
highest during the last calendar quarter, decline in the first calendar quarter
and are lowest in the second and third calendar quarters. This seasonal pattern
is due primarily to the increased demand for home recreation and entertainment
software products during the year-end holiday buying season. Accordingly, the
Company's revenues from this line of business will reflect these seasonal
patterns. In addition, quarterly fluctuations in operating results will be
exacerbated by delays in new product introductions, the introduction of
competitive products, the popularity of particular multimedia platforms and a
variety of other factors relating to the distribution and development process
for the products involved, including software malfunctions in title offerings. A
significant portion of the Company's operating expenses are relatively fixed and
certain expenditures are based on sales forecasts. If net sales do not meet the
Company's expectations in a given quarter, the Company' s operating results or
financial condition could be adversely affected.
Dependence on Third Party Manufacturers. The Company's titles are
manufactured by third-party manufacturers and therefore the Company does not
have direct control over the quality of manufacturing. Additionally, some of the
third party manufacturers may publish competitive titles of their own, to which
preferential treatment may be given. Any of the foregoing would adversely affect
the Company's revenues from the sale of its titles. Management believes that
current arrangements for the manufacture of the Company's titles are
satisfactory for the Company's anticipated requirements. Nevertheless, there can
be no assurance that in the future the third party manufacturing capacities will
be sufficient to satisfy the Company's requirements, that interruptions or
delays in manufacturing will not adversely affect the Company's operations, or
that alternative manufacturing sources will be available to the Company on
commercially reasonable terms or at all. In particular, the Company frequently
packages and sells titles in its Picture Perfect Golf series together with an
infrared golf club, which is currently available from only one independent third
party manufacturer. Occasionally, the Company has postponed delivery of titles
in its Picture Perfect Golf series as a result of the manufacturer's inability
to timely deliver the infrared golf club. While the Company is seeking to
establish alternative sources which can produce the infrared golf club or
acquire the rights to manufacture the infrared golf club currently utilized in
the Picture Perfect Golf series, there can be no assurance that such efforts
will be successful.
Availability and Restrictive Nature of Licenses. The Company currently
licenses a wide variety of intellectual property from others for use in its
titles. There can be no assurance that the terms of these licenses will survive
the marketing lives of the titles to which they relate or that the Company will
be able to renew such licenses on commercially reasonable terms, if at all. The
Company expects to continue to incorporate the intellectual property of others
into the titles it develops in the future. As such it will need to obtain
licenses to use such intellectual property. The Company will attempt to obtain
future licenses on commercially reasonable terms and with terms of duration
which will survive the lives of the titles to which they relate. However, there
can be no assurance that the Company will be able to obtain licenses of
sufficient duration on commercially reasonable terms or will be able to renew
existing licenses on commercially reasonable terms. The inability to obtain or
renew such licenses, as the case may be, could have an adverse effect on the
business of the Company.
Software Technology; Lack of Patent Protection. The Company's future
success will be heavily dependent upon its software technology; and the Company
will rely on a combination of contractual rights, trade secrets and copyright
laws to establish or protect its technology in the countries where it will
conduct business. The Company currently does not possess any patent or other
registered intellectual property rights with respect to its software technology,
other than copyrights with respect to the overall content of completed titles
developed by the Company.
-11-
<PAGE>
There can be no assurance that the steps taken by the Company to protect its
rights will be adequate to deter misappropriation, especially since the Company
operates in an industry in which revenues are adversely affected by the
unauthorized reproduction of products for commercial sale, commonly referred to
as "piracy." Moreover, although the Company does not believe that it is
infringing on the intellectual property rights of others, there can be no
assurance that such infringement claims will not be asserted against the Company
in the future and if an infringement claim is successful, it could have a
material adverse effect on the Company. Copyright and other proprietary rights
to material licensed for use on CD-ROM and other multimedia platforms is a
relatively new area of the law. Although the Company is not a party to any such
claim, there is the possibility of legal challenges in respect of all such
rights.
RISKS RELATED TO THE CAPITALIZATION OF THE COMPANY
Authorization of Preferred Stock. In addition to the Convertible
Preferred Stock, the Company's Board of Directors has the authority, without
further action by the stockholders, to issue 1,993,280 shares of Preferred
Stock, in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. While no additional
class or series of preferred stock can be senior to the Convertible Preferred
Stock, the issuance of preferred stock in the future could adversely affect the
voting power of holders of the Company's Common Stock and could have the effect
of delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any additional shares of preferred stock.
No Dividends. The Company has never paid cash dividends on the Common
Stock. The Company intends to retain any future earnings to finance its growth.
Outstanding Options and Warrants. There are currently outstanding
options and warrants to purchase 12,440,108 shares in the aggregate at exercise
prices ranging between $1.75 and $6.60. In addition, the Convertible Preferred
Stock may be converted into 4,200,000 shares of Common Stock. The exercise of
such options and warrants or the conversion of the Convertible Preferred Stock
will have a dilutive effect on the ownership interests of the Company's existing
stockholders.
Possible Volatility of Securities Prices. The market price of Common
Stock has in the past been, and may in the future continue to be, volatile. A
variety of events, including quarter to quarter variations in operating results,
news announcements or the introduction of new products by the Company or its
competitors, as well as market conditions in the interactive multimedia industry
or changes in earnings estimates by securities analysts may cause the market
price of the Common Stock to fluctuate significantly. In addition, the stock
market in recent years has experienced significant price and volume fluctuations
which have particularly affected the market prices of equity securities of many
companies that service the software industry and which often have been unrelated
to the operating performance of such companies. These market fluctuations may
adversely affect the price of the Common Stock.
Indefinite Amount of Common Stock Issuable upon the Conversion of
Preferred Stock. The holders of the Convertible Preferred Stock have the right,
at the holder's option, at any time after April 30, 1997, or from time to time
to thereafter, to convert each share of Convertible Preferred Stock into such
whole number of shares of Common Stock equal to the aggregate stated value
($1,250) of the Convertible Preferred Stock to be converted divided by the
lesser of (i) $2.00 or (ii) 50% of the average closing sale price for the Common
Stock for the last ten trading days in the fiscal quarter of the Company prior
to such conversion. Accordingly, if the price of the Common Stock is below
$2.00, the number of shares that the Company will be required to issue upon the
conversion of the Convertible Preferred Stock will be uncertain. While the
Company intends to have sufficient authorized capital with respect to the
conversion of the Convertible Preferred Stock, there can be no assurance that
the Company will in fact have a sufficient amount of authorized Common Stock to
cover all conversions of Convertible Preferred Stock.
-12-
<PAGE>
New Proposed Nasdaq Regulations. On November 6, 1996, the Board of
Directors of The Nasdaq Stock Market, Inc. approved changes to further
strengthen both the quantitative and qualitative standards for issuers listing
on Nasdaq. While the Company presently meets the proposed new standards, there
can be no assurance that it will continue to be able to do so. If it should fail
to meet one or more of such standards, its Common Stock would be subject to
deletion from Nasdaq. If this should occur, trading, if any, in the Common
Stock, would then continue to be conducted in the over-the-counter market on the
OTC Bulletin Board, an NASD-sponsored inter-dealer quotation system, or in what
are commonly referred to as "pink sheets." As a result, an investor may find it
more difficult to dispose of or to obtain accurate quotations as to the market
value of the Company's Common Stock.
Forward Looking Statements. This Prospectus contains certain
forward-looking statements, which are intended to be covered by the safe harbors
created by the Private Securities Litigation Reform Act of 1995. Investors are
cautioned that all forward-looking statements involve risks and uncertainty,
including without limitation, the ability of the Company to provide a full range
of Internet and Intranet-based business solutions. Although the Company believes
that the assumptions, including the demand for Web-related services, underlying
the forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this press release will prove to be
accurate. In light of significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
-13-
<PAGE>
USE OF PROCEEDS
EXERCISE OF OPTIONS, JANUARY 1994 WARRANTS, COMMON STOCK PURCHASE WARRANTS,
PURCHASE OPTIONS, PURCHASE OPTION WARRANTS, 1996 WARRANTS AND SECONDARY OPTIONS.
Assuming that all of the Options, January 1994 Warrants, Common Stock
Purchase Warrants, Purchase Options, Purchase Option Warrants, 1996 Warrants and
Secondary Options are exercised, the net proceeds to the Company upon the
exercise of such warrants and options are estimated to be approximately
$42,787,000. The Company must use any of the proceeds it receives from the
exercise of the Common Stock Purchase Warrants, which could amount to
$20,485,872 in the aggregate, for the redemption of the Convertible Preferred
Stock at a redemption price equal to 1.1 multiplied by the Stated Value
($1,250). The balance of any proceeds received from the exercise of the Common
Stock Purchase Warrants or any proceeds received by the Company in the Offering
will be used for expanding the Company's internet services business and title
publishing.
CONVERSION OF PREFERRED STOCK
The Company will not receive any proceeds from the conversion of the
Convertible Preferred Stock.
OFFERING BY SELLING SHAREHOLDERS
The Company will not receive any of the proceeds from the sale of any
of the Secondary Shares or the Employee Shares.
-14-
<PAGE>
DILUTION
As of November 30, 1996, the unaudited net tangible book value of the
Company was $930,100, or approximately $.12 per share based on 7,679,441 shares
of Common Stock outstanding. Assuming the issuance of an additional 4,200,000
shares of Common Stock upon the conversion of the Convertible Preferred Stock,
the pro forma net tangible book value of the Company's Common Stock at November
30, 1996 would have been $8,802,200 or approximately $.74 per share based on
11,879,441 shares of Common Stock outstanding. Net tangible book value per share
represents the tangible assets of the Company less all liabilities, divided by
the number of shares outstanding. Dilution represents the difference between the
price per share of Common Stock paid by the holders of the Options, January 1994
Warrants, Common Stock Purchase Warrants, Purchase Options, Purchase Option
Warrants, 1996 Warrants and Secondary Options exercising or converting, as the
case may be, of all such securities pursuant to this Offering and the pro forma
net tangible book value per share of Common Stock after this Offering. After
giving effect to the sale of the shares of Common Stock by the Company hereby
(assuming the exercise or conversion, as the case may be, of all the Options,
January 1994 Warrants, Common Stock Purchase Warrants, Purchase Options,
Purchase Option Warrants, Convertible Preferred Stock, 1996 Warrants and
Secondary Options, the adjusted net tangible book value of the Company at
November 30, 1996, would have been $22,832,909 or $2.26 per share. This
represents an immediate increase in pro forma net tangible book value of $1.52
per share to existing shareholders and an immediate dilution of (i) $.09 per
share to holders of the January 1994 Warrants exercising their January 1994
Warrants at an average exercise price of $2.35; (ii) $.12 per share to holders
of the Options exercising their Options at $2.38; (iii) $1.45 per share to
holders of the Secondary Options exercising their Secondary Options at $3.71;
(iv) $1.74 per share to holders of the Common Stock Purchase Warrants or the
1996 Warrants exercising their Common Stock Purchase Warrants or the 1996
Warrants at $4.00; (v) $2.94 per share to holders of the Purchase Option
Warrants exercising their Purchase Option Warrants at the equivalent of $5.20
per share; (vi) $4.34 per share to holders of the Purchase Options exercising
their Purchase Options at the equivalent of $6.60 per share (assuming no amount
of the exercise price is attributed to the purchase of the underlying Purchase
Option Warrants. The following table illustrates this dilution on a per share
basis:
Exercise Price of January 1994
Warrants, Options, Secondary
Options, 1996 Warrants and Common
Stock Purchase Warrants, Purchase
Option Warrants and Purchase
Options .............................. $2.35 $2.38 $3.71 $4.00 $5.20 $6.60
Pro forma net tangible book value
per share before offering(1).......... $.74 $.74 $.74 $.74 $.74 $.74
Net tangible book value
immediately after the exercise of
the January 1994 Warrants,
Options, Secondary Options, 1996
Warrants, Common Stock Purchase
Warrants, Purchase Option Warrants
and Purchase Options(2)............... $.82 $.87 $.91 $2.20 $2.22 $2.26
Adjusted pro forma net tangible
book value after this Offering........ $2.26 $2.26 $2.26 $2.26 $2.26 $2.26
Dilution of pro forma net tangible
book value to purchasers of Common
Stock underlying January 1994
Warrants, Options, Secondary
Options, 1996 Warrants, Common
Stock Purchase Warrants, Purchase
Option Warrants and Purchase
Options............................... $.09 $.12 $1.45 $1.74 $2.94 $4.34
===== ===== ===== ===== ===== =====
(1) Reflects the receipt of the Net Proceeds from the 1996 Private
Placement and the conversion of 6,720 shares of Convertible Preferred
Stock into 4,200,000 shares of Common Stock.
(2) Assumes that all options and warrants (excluding options granted under
the 1994 Plan, the Directors Plan and the Consultant Plan) which have
an exercise price which is less than or equal to the exercise price of
the warrant or option have been exercised.
-15-
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth (i) the number of shares of Common Stock
owned by each Selling Shareholder at January 31, 1997; (ii) the number of shares
being offered for resale hereby by each Selling Shareholder; and (iii) the
number and percentage of shares of Common Stock to be held by each Selling
Shareholder after the completion of this Offering. Except as otherwise indicated
in the Footnotes to such table, none of such Selling Shareholders has been an
officer, director or employee of the Company for the past three years.
-16-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Shares to Shares of Common Stock
Beneficially Owned be Sold in Beneficially Owned
Name Prior to Offering (1) Offering After Offering
---- --------------------- -------- ---------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Harvey B. Adams 50,000(2) * 100,000 0 0
ALSA, Inc. 25,000(2) * 50,000 0 0
Wissam Amoudi 25,000(2) * 50,000 0 0
Barry Rubenstein 4,418,329(3) 41.2% 7,268,329 0 0
68 Wheatley Road
Brookville, NY 11545
Applewood 1,507,304(4) 16.9 2,757,304 0 0
Associates, L.P.
68 Wheatley Road
Brookville, NY 11545
Jan Arnett 50,000(2) * 100,000 0 0
B&B Trading Corp. 25,000(2) * 50,000 0 0
Retirement Plan
Pension Plan
Neil Bellet 25,000(2) * 50,000 0 0
Robert Bender 25,000(2) * 50,000 0 00
Mordecai Bluth 25,000(2) * 50,000 0 0
SEP IRA
Martin G. Bourbonnais 25,000(2) * 50,000 0 0
Craig Effron 12,500(2) * 25,000 0 0
Steven Etra 50,000(2) * 100,000 0 0
David H. Fink 12,500(2) * 25,000 0 0
Lloyd Goldman 25,000(2) * 50,000 0 0
Ernest Gottdiener 25,000(2) * 50,000 0 0
Donald J. Groetch 12,500(2) * 25,000 0 0
IRA Account
Frank Joy and 50,000(2) * 100,000 0 0
Charlotte Joy
JTWROS
Daniel A. Kaplan 12,500(2) * 25,000 0 0
Richard C. Kaufman & 12,500(2) * 25,000 0 0
Elaine J. Lenart
JTWROS
Norman Kurtz 25,000(2) * 50,000 0 0
R. Bruce LeBlanc 25,000(2) * 50,000 0 0
Paul D. Levitt & 12,500(2) * 25,000 0 0
Leslie S. Levitt
Revocable Trust
Herbert Melslich 12,500(2) * 25,000 0 0
William J. Rouhana, Jr. 25,000(2) * 50,000 0 0
Walter Scheuer 150,000(2) * 300,000 0 0
1993 Charitable Trust
Seneca Ventures 1,074,503(5) 13.0 1,424,503 0 0
68 Wheatley Road
Brookville, NY 11545
Mark Shnitkin 25,000(2) * 50,000 0 0
Carl E. Siegel 12,500(2) * 25,000 0 0
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Shares to Shares of Common Stock
Beneficially Owned be Sold in Beneficially Owned
Name Prior to Offering (1) Offering After Offering
---- --------------------- -------- ---------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
TelCom Partners, L.P. 25,000(2) * 50,000 0 0
Frank K. Turner 12,500(2) * 25,000 0 0
21st Century 1,836,522(6) 20.6 3,036,522 0 0
Communications
- -Foreign Partners, L.P.
c/o Fiduciary Trust
(Cayman Limited)
p.o. Box 1062, One
Capital Place
Georgetown, Grand
Cayman, British West
Indies
21st Century 1,836,522(6) 20.6 1,836,522 0 0
Communications
Partners, L.P.
767 Fifth Avenue-45th
Fl.
New York, NY 10153
21st Century 1,836,522(6) 20.6 1,836,522 0 0
Communications T-E
Partners, L.P.
767 Fifth Avenue
New York, NY 10153
Richard Warren 12,500(2) * 25,000 0 0
Charles Warshaw 25,000(2) * 50,000 0 0
Aaron Wolfson 37,500(2) * 75,000 0 0
Abraham Wolfson 25,000(2) * 50,000 0 0
Wolfson Equities 412,500(2) 5.1% 825,000 0 0
35 Carey Street
Lakewood, New Jersey
08701
Morris Wolfson Family 25,000(2) * 50,000 0 0
Partnership
Woodland Partners 1,074,503(7) 13.0 1,424,503 0 0
68 Wheatley Road
Brookville, NY 11545
Woodland Venture Fund 1,074,503(8) 13.0 1,424,503 0 0
68 Wheatley Road
Brookville, NY 11545
Eli Oxenhorn 25,500(9) * 25,500 0 0
Vanwood 72nd Street 50,000(10) * 50,000 0 0
Associates
Gerald Josephson 41,250(11) * 41,250 0 0
Nicholas Cowan 10,000(10) * 10,000 0 0
Sherry Daly 10,000(10) * 10,000 0 0
Alan Douglas 7,500(10) * 7,500 0 0
Richard Flanzer 12,500(10) * 12,500 0 0
Invision 2,500(10) * 2,500 0 0
Harrison Weaver 35,000(12) * 20,000 0 0
The Continuum Group, 50,000(10) * 50,000 0 0
Inc.
Ted Weis 5,000(10) * 5,000 0 0
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Shares to Shares of Common Stock
Beneficially Owned be Sold in Beneficially Owned
Name Prior to Offering (1) Offering After Offering
---- --------------------- -------- ---------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Anthony Kee 1,750(10) * 1,750 0 0
Jennifer Negri 1,750(10) * 1,750 0 0
Curtis Urbina 1,500(10) * 1,500 0 0
John Levy 1,000(10) * 1,000 0 0
Robert Audrey 500(10) * 500 0 0
Alex Miller 500(10) * 500 0 0
Mark I. Silverman 42,500(13) * 42,500 0 0
Eng Chye Low 5,100(13) * 5,100 0 0
Alfred Burg 4,250(13) * 4,250 0 0
David Thalheim 34,000(13) * 34,000 0 0
Cliff Lane 5,100(13) * 5,100 0 0
Jonathan Robinson 8,500(13) * 8,500 0 0
Michael Weisman 7,500(13) * 7,500 0 0
Douglas Schenerdorf 5,100(13) * 5,100 0 0
Susan Burman 5,100(13) * 5,100 0 0
Gary Glatter 5,100(13) * 5,100 0 0
Stanley Blum 16,150(13) * 16,150 0 0
Irwin Lieber 3,385,826(14) 33.3 3,885,826 0 0
Irwin Schecter 17,000(13) * 17,000 0 0
Ronald Birnbaum 8,500(13) * 8,500 0 0
Seymour Cohen 8,500(13) * 8,500 0 0
Alan Silverman 17,000(13) * 17,000 0 0
Jay Thalheim 4,250(13) * 4,250 0 0
Steven Levine 5,100(13) * 5,100 0 0
Lombard 17,000(13) * 17,000 0 0
Michael Sofia 17,000(13) * 17,000 0 0
Northern Union Club 42,500(13) * 42,500 0 0
David Nussbaum 93,900(15) 1.2 93,900 0 0
Roger Gladstone 93,900(15) 1.2 93,900 0 0
Robert Gladstone 93,900(15) 1.2 93,900 0 0
GKN Securities Corp. 236,600(16) 3.0 236,600 0 0
Richard Buonocore 10,200(17) * 10,200 0 0
Brian Coventry 2,550(18) * 2,550 0 0
Andrew Lazarus 7,425(19) * 7,425 0 0
Deborah Schondorf- 13,500(20) * 13,500 0 0
Novick
Neil Betoff 525(21) * 525 0 0
Wien Securities Corp. 100,000(22) 1.3 100,000 0 0
Harry Datys 3,000(22) * 3,000 0 0
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Shares to Shares of Common Stock
Beneficially Owned be Sold in Beneficially Owned
Name Prior to Offering (1) Offering After Offering
---- --------------------- -------- ---------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Andrea Goldman 1,500(22) * 1,500 0 0
Lester Rosenkrantz 3,000(22) * 3,000 0 0
Gordon Freeman 100,000(23) 1.3 100,000 0 0
Dalewood Associates, 100,000(23) 1.3 100,000 0 0
L.P.
James McNeil 75,000(23) * 75,000 0 0
The Marilyn and Barry 1,074,503(24) 13.0 1,424,503 0 0
Rubenstein Family
Foundation
c/o Barry Rubenstein
68 Wheatley Road
Brookville, NY 11545
Michael Alford 163,275(25) 2.1 163,275 0 0
Ernest Kelly 46,977(25) * 46,977 0 0
Randal Hajar 253,561(25) 3.3 253,561 0 0
Gary Skiba 310,867(25) 4.0 310,867 0 0
Revwood Merchant 175,000(26) 2.2 175,000 0 0
Partners
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Shares of the Company's Common Stock subject to
options, warrants and convertible preferred stock currently exercisable
or convertible, or exercisable or convertible within sixty (60) days,
are deemed outstanding for computing the percentage of the person
holding such options or warrants but are not deemed outstanding for
computing the percentage of any other person.
(2) Consists of presently issuable 1996 Warrant Shares issuable upon the
exercise of the 1996 Warrants. Does not include a like number of
Conversion Shares underlying Convertible Preferred Stock which may be
converted into Common Stock at the holder's option at anytime after
April 30, 1998. All of such Conversion Shares and 1996 Warrant Shares
are being offered for resale pursuant to this Prospectus.
(3) Based on Amendment Number 3 to a Schedule 13D filed on February 11,
1997 by Barry Rubenstein, Woodland Venture Fund ("Woodland Fund"),
Seneca Ventures ("Seneca"), Woodland Services Corp. ("Woodland Corp."),
21st Century Communications Partners, L.P. ("21st Partners"), 21st
Century Communications T-E Partners, L.P. ("21st T-E"), 21st Century
Communications Foreign Partners, L.P. ("21st Foreign"), Michael J.
Marocco, Barry Lewis, John Kornreich, Harvey Sandler, Andrew Sandler,
Barry Fingerhut, Irwin Lieber, Woodland Partners, Applewood Associates,
L.P. ("Applewood"), Applewood Capital Corp. ("Applewood Capital"), Seth
Lieber, Jonathan Lieber, Marilyn Rubenstein, The Marilyn and Barry
Rubenstein Family Foundation (the "Foundation"), and Brian Rubenstein
(the "February 1997 13D"), Barry Rubenstein has sole beneficial
ownership of 332,500 shares of Common Stock (including 185,000 Option
Shares). Mr. Rubenstein may also be deemed to share beneficial
ownership of 4,085,829 shares of Common Stock by virtue of being: (i) a
stockholder, officer and director of InfoMedia Associates, Ltd.
("InfoMedia") which is a general partner of 21st Partners, 21st T-E and
21st Foreign which collectively hold 1,836,522 shares of Common Stock
(including 1,250,000 Common Stock Warrant Shares and/or 1996 Warrant
Shares); (ii) a trustee of the Foundation which holds 123,237 shares of
Common Stock (including 20,000 Common Stock Warrant Shares); and (iii)
a general partner of each of Applewood, Seneca, the Woodland Fund and
Woodland Partners which hold an aggregate of 2,126,070 shares of Common
Stock (including 1,580,000 Common Stock Warrant Shares and/or 1996
Warrant Shares). Mr. Rubenstein will also sell in the Offering
2,850,000 Conversion Shares which he shares beneficial ownership with
the above listed entities. Mr. Rubenstein disclaims beneficial
ownership of all the above securities, except to the extent of his
equity interest therein.
(4) Consists of 1,250,000 1996 Warrant Shares and 257,304 Secondary Shares.
Does not include 1,250,000 Conversion Shares. All of such Warrant
Shares, Conversion Shares and Secondary Shares are being offered for
resale pursuant to this Prospectus.
-20-
<PAGE>
(5) Based on the February 1997 13D, Seneca has sole beneficial ownership of
207,922 shares of Common Stock (including 100,000 shares of Common
Stock underlying presently exercisable Common Stock Purchase Warrants
or 1996 Warrants). Seneca may also be deemed to share beneficial
ownership of 866,581 shares of Common Stock (including 250,000 shares
of Common Stock underlying presently exercisable Common Stock Warrants
or 1996 Warrants) with the Woodland Fund, Woodland Corp., Woodland
Partners, and the Foundation. In addition, Seneca has sole beneficial
ownership of 100,000 Conversion Shares and shares beneficial ownership
of 250,000 Conversion Shares with the above listed entities, all of
which will be offered for sale in the Offering. Seneca disclaims
beneficial ownership of these securities, except to the extent of its
equity interest therein.
(6) Based on the February 1997 Schedule 13D (i) 21st Foreign holds 48,896
shares of Common Stock (including 15,974 Secondary Shares), 114,000
1996 Warrant Shares and 114,000 Conversion Shares; (ii) 21st Partners
holds 398,490 shares of Common Stock (including 118,655 Secondary
Shares), 847,500 Warrant Shares and 847,500 Conversion Shares and (iii)
21st T-E holds 139,136 shares of Common Stock (including 40,371
Secondary Shares), 228,500 Warrant Shares and 228,500 Conversion
Shares. Beneficial ownership as of February 1, 1997 excludes the
Conversion Shares. All of the Secondary Shares, Warrant Shares and
Conversion Shares are being offered for resale pursuant to this
Prospectus. While the above table aggregates stock ownership for each
of 21st Foreign, 21st Partners and 21st T-E, (i) 21st Foreign disclaims
beneficial ownership of all Shares held by 21st Partners and 21st T-E,
(ii) 21st Partners disclaims beneficial ownership of all Shares held by
21st Foreign and 21st T-E and (iii) 21st T-E disclaims beneficial
ownership of all Shares held by 21st Foreign and 21st Partners.
(7) Based on the February 1997 13D, Woodland Partners has sole beneficial
ownership of 100,000 shares of Common Stock (including 100,000 1996
Warrant Shares). Woodland Partners may also be deemed to share
beneficial ownership of 974,503 shares of Common Stock (including
250,000 shares of Common Stock underlying presently exercisable Common
Stock Purchase Warrants or 1996 Warrants) with the Woodland Fund,
Seneca, Woodland Corp., and the Foundation. In addition, Woodland
Partners has sole beneficial ownership of 100,000 Conversion Shares and
shares beneficial ownership of 250,000 Conversion Shares with the above
listed entities, all of which will be offered for sale in the Offering.
Woodland Partners disclaims beneficial ownership of these securities,
except to the extent of its equity interest therein.
(8) Based on the February 1997 13D, the Woodland Fund has sole beneficial
ownership of 310,844 shares of Common Stock (including 150,000 1996
Warrant Shares). The Woodland Fund may also be deemed to share
beneficial ownership of 763,659 shares of Common Stock (including
200,000 Common Stock Warrant Shares) with Seneca, Woodland Corp.,
Woodland Partners, and the Foundation. The Woodland Fund has sole
beneficial ownership of 150,000 Conversion Shares and shares beneficial
ownership of 200,000 shares of Conversion Shares with the above listed
entities, all of which will be offered for sale in the Offering. The
Woodland Fund disclaims beneficial ownership of these securities,
except to the extent of its equity interest therein.
(9) Consists of January 1994 Warrant Shares. Does not include Shares held
by Revwood Merchant Partners. Mr. Oxenhorn is a partner of Revwood
Merchant Partners.
(10) Consists of presenting exercisable Option Shares.
(11) Consists of 20,000 Option Shares and 21,250 1994 Warrant Shares.
(12) Mr. Weaver has been a Director of the Company since December 1993.
Consists of 20,000 Option Shares and 15,000 shares of Common Stock
issuable upon exercise of presently exercisable options granted
pursuant to the Directors Plan. Excludes 50,000 Option Shares held by
The Continuum Group, Inc., an entity in which Mr. Weaver is a Director,
which options Mr. Weaver disclaims beneficial ownership.
(13) Consists of 1994 Warrant Shares.
(14) Based on the February 1997 13D, Irwin Lieber has sole beneficial
ownership of 42,000 shares of Common Stock (including 37,000 shares of
Common Stock underlying presently exercisable Common Stock Purchase
Warrants or January 1994 Warrants). By virtue of being a stockholder,
officer and director of InfoMedia and a general partner of Applewood,
Irwin Lieber may be deemed to share beneficial ownership of 3,343,826
shares of Common Stock (including 2,500,000 shares of Common Stock
underlying presently exercisable Common stock Purchase Warrants or 1996
Warrants). In addition, Mr. Lieber shares beneficial ownership of
2,500,000 Conversion Shares with the above listed entities, all of
which will be offered for sale in the Offering. Mr. Lieber disclaims
beneficial ownership of these securities, except to the extent of his
equity ownership therein.
(15) Consists of (i) 27,000 presently issuable Purchase Option Shares
underlying Purchase Options; (ii) 27,000 presently issuable Purchase
Option Warrant Shares underlying Purchase Option Warrants, which
presently issuable Purchase Option Warrants underlie Purchase Options;
and (iii) 39,900 presently issuable Secondary Offering Option Shares
underlying Secondary Option. The Purchase Options are presently
exercisable until October 20, 1997 and the Secondary Option is
presently exercisable until May 21, 2001 and the Purchase Option
Warrants, upon grant, would be presently exercisable until October 20,
1997. All of such Offering Shares are being offered for resale pursuant
to this Prospectus. Excludes Shares held by GKN Securities Corp. Mr.
Nussbaum and Messrs. Gladstone are Directors and Officers of GKN
Securities Corp. and they each disclaim beneficial ownership of all
Shares held by GKN Securities Corp.
-21-
<PAGE>
(16) Consists of (i) 55,500 presently issuable Purchase Option Shares
underlying Purchase Options; (ii) 55,500 presently exercisable Purchase
Option Warrant Shares underlying Purchase Option Warrants, which
presently issuable Purchase Option Warrants underlie Purchase Options;
(iii) 75,600 presently issuable Secondary Offering Option Shares
underlying Secondary Options and (iv) 50,000 Secondary Shares. All of
such Shares are being offered for resale pursuant to this Prospectus.
(17) Consists of (i) 3,000 presently issuable Purchase Option Shares
underlying Purchase Options; (ii) 3,000 presently exercisable Purchase
Option Warrant Shares underlying Purchase Option Warrants and 4,200
Secondary Offering Option Shares. All of such Shares are being offered
for resale pursuant to this Prospectus.
(18) Consists of (i) 750 presently issuable Purchase Option Shares
underlying Purchase Options; and (ii) 750 presently exercisable
Purchase Option Warrant Shares underlying Purchase Option Warrants and
(iii) 1,050 Secondary Offering Option Shares. All of such Shares are
being offered for resale pursuant to this Prospectus.
(19) Consists of (i) 1,875 presently issuable Purchase Option Shares
underlying Purchase Options, (ii) 1,875 Purchase Option Warrant Shares
underlying Purchase Option Warrants and (iii) 3,675 Secondary Offering
Option Shares. All of such Shares are being offered for resale pursuant
to this Prospectus.
(20) Consists of (1) 4,125 presently issuable Purchase Option Shares
underlying Purchase Options; (ii) 4,125 presently exercisable Purchase
Option Warrant Shares underlying Purchase Option Warrants; and (iii)
5,250 Secondary Offering Option Shares. All of such Shares are being
offered for resale pursuant to this Prospectus.
(21) Consists of 525 Secondary Offering Option Shares, all of which are
being offered for resale pursuant to this Prospectus.
(22) Consists of a like number of Purchase Option Shares and Purchase Option
Warrant Shares. All of such Shares are being offered for resale
pursuant to this Prospectus.
(23) Consists of Secondary Shares all of which are being offered for resale
pursuant to this Prospectus.
(24) Based on the February 1997 13D, the Foundation has sole beneficial
ownership of 123,237 shares of Common Stock (including 20,000 shares of
Common Stock underlying presently exercisable Common Stock Purchase
Warrants or 1996 Warrants). In addition, the Foundation may be deemed
to share beneficial ownership of 951,266 shares of Common Stock
(including 350,000 shares of Common Stock underlying presently
exercisable Common Stock Purchase Warrants or 1996 Warrants, Conversion
Shares and Preferred Shares with Mr. and Ms. Rubenstein, the Woodland
Fund, Seneca, Woodland Corp. and Woodland Partners, all of which are
being for resale in the Offering. The Foundation disclaims beneficial
ownership of these securities, except to the extent of its equity
interest therein.
(25) Consists of Employee Shares.
(26) Consists of 100,000 Option Shares and 75,000 Secondary Shares.
-22-
<PAGE>
DESCRIPTION OF SECURITIES
The Company is currently authorized to issue 30,000,000 shares of the
Company's Common Stock, par value $.01 per share, and 2,000,000 shares of
preferred stock, par value $.01 per share. The Company has submitted for
stockholder approval a proposal which would increase the authorized Common Stock
of the Company from 30,000,000 shares of Common Stock to 50,000,000 shares of
Common Stock. As of the date of this Prospectus, 7,679,441 shares of the
Company's Common Stock are currently issued and outstanding and 6,720 shares of
Convertible Preferred Stock are issued and outstanding, and after the completion
of this Offering, assuming the exercise or conversion, as the case may be, of
all of the Options, January 1994 Warrants, Common Stock Purchase Warrants,
Purchase Options, Purchase Option Warrants, Convertible Preferred Stock, 1996
Warrants and Secondary Options, there will be 22,832,909 shares of the Company's
Common Stock issued and outstanding and no shares of Convertible Preferred Stock
issued and outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted can elect all of the
directors then being elected at a meeting at which a quorum is present. The
holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available therefor. In
the event of liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably in all assets remaining available
for distribution to them after payment of liabilities and after provision has
been made for the Convertible Preferred Stock and any other class of stock, if
any, having preference over the Common Stock. Holders of shares of Common Stock,
as such, have no redemption, preemptive or other subscription rights, and there
are no conversion provisions applicable to the Common Stock.
CONVERTIBLE PREFERRED STOCK
Stated Value. Each share of Preferred Stock will have a stated value
(the "Stated Value") equal to $1,250.
Liquidation Preferences. Upon a liquidation of the Company (including a
sale by the Company of all or substantially all of its assets or a merger or
consolidation of the Company with another Company where the Company is not the
surviving entity), the assets of the Company available for distribution to the
stockholders of the Company, whether from capital, surplus or earnings, shall be
distributed in the following order of priority: (i) the holders of the
Convertible Preferred Stock shall be entitled to receive, prior and in
preference to any distribution to the holders of any Junior Securities (as
defined below) of the Company, an amount equal to the product of the Stated
Value multiplied by 1.1 for each share of Convertible Preferred Stock then
outstanding and (ii) the remaining assets of the Company available for
distribution, if any, to the stockholders of the Company shall be distributed
pro rata to the holders of issued and outstanding shares of Common Stock.
Ranking. The Convertible Preferred Stock will rank senior to all
classes and series of capital stock of the Company now existing or hereinafter
authorized, issued or outstanding, including, without limitation, the Common
Stock, and any other classes and series of capital stock of the Company now or
hereinafter authorized, issued or outstanding (collectively, "Junior
Securities"). The Company will not issue any class or series of any class of
capital stock which ranks pari passu with the Convertible Preferred Stock with
respect to rights on liquidation, dissolution or winding up of the Company.
-23-
<PAGE>
Dividends. The holders of the Convertible Preferred Stock shall not be
entitled to receive any dividends, cash or otherwise, in connection with the
Preferred Stock. No dividends shall be payable upon any Junior Securities unless
equivalent dividends, on an as-converted basis, are declared and paid
concurrently on the Convertible Preferred Stock. No dividends shall be payable
on any other classes of preferred stock during such time as the Convertible
Preferred Stock is outstanding.
Conversion. The holders of the Convertible Preferred Stock shall have
the right, at the holder's option, at any time after April 30, 1998, or from
time to time thereafter, to convert each share of Convertible Preferred Stock
into such whole number of shares of Common Stock equal to the aggregate Stated
Value of the Convertible Preferred Stock to be converted divided by the lesser
of (i) $2.00 or (ii) 50% of the average closing sale price for the Common Stock
for the last ten trading days in the fiscal quarter of the Company prior to such
conversion (the "Conversion Rate"). The Conversion Rate of the Convertible
Preferred Stock (when calculated on the basis of dividing the Stated Value by
$2.00 only) will be subject to adjustment to protect against dilution in the
event of stock dividends, stock splits, combinations, subdivision and
reclassifications.
Redemption. (a) At any time and from time to time, the Company shall
have the option (unless otherwise prevented by law) to redeem all, or any
portion of on a pro-rata basis, the Convertible Preferred Stock, upon 30 days
prior written notice, at a redemption price equal to 1.1 multiplied by the
Stated Value for each such share of the Convertible Preferred Stock; and (b) the
Company must redeem the Convertible Preferred Stock at 1.1 multiplied by the
Stated Value, in the event the Company receives proceeds from (i) the exercise
of any of the Company's outstanding Common Stock Purchase Warrants, or (ii) any
other equity financing, provided, however, that only 50% of the proceeds from
such other financing will be used to redeem the Convertible Preferred Stock. If
the proceeds raised from the exercise of the Common Stock Purchase Warrants or
such other equity financing are not sufficient to redeem all of the Convertible
Preferred Stock, the Convertible Preferred Stock shall be redeemed with such
proceeds on a pro-rata basis.
Voting. The holders of the Convertible Preferred Stock shall be
entitled to vote on all matters submitted to the stockholders. Each share of
Convertible Preferred Stock shall have that number of votes equal to the number
of shares of Common Stock into which it is then convertible as of the record
date of the proposed stockholder action. The holders of the Convertible
Preferred Stock shall also vote as a separate class on all matters which the
General Corporate Law of the State of Delaware specifically requires the holders
of such Convertible Preferred Stock to vote as a separate class.
OTHER PREFERRED STOCK
The Company's authorized shares of preferred stock may be issued in one
or more series, and the Board of Directors is authorized, without further action
by the stockholders, to designate the rights, preferences, limitations and
restrictions of and upon shares of each series, including dividend, voting,
redemption and conversion rights. The Board of Directors also may designate par
value, preferences in liquidation and the number of shares constituting any
series. The Company believes that the availability of preferred stock issuable
in series will provide increased flexibility for structuring possible future
financings and acquisitions, if any, and in meeting other corporate needs. It is
not possible to state the actual effect of the authorization and issuance of any
series of preferred stock upon the rights of holders of Common Stock until the
Board of Directors determines the specific terms, rights and preferences of a
series of preferred stock. However, such effects might include, among other
things, restricting dividends on the Common Stock, diluting the voting power of
the Common Stock, or impairing liquidation rights of such shares without further
action by holders of the Common Stock. In addition, under various circumstances,
the issuance of preferred stock may have the effect of facilitating, as well as
impeding or discouraging, a merger, tender offer, proxy contest, the assumption
-24-
<PAGE>
of control by a holder of a large block of the Company's securities or the
removal of incumbent management. Issuance of preferred stock could also
adversely effect the market price of the Common Stock. The Company has no
present plan to issue any shares of preferred stock.
1996 WARRANTS
Each 1996 Warrant will entitle the registered holder to purchase one
share of the Common Stock at an exercise price equal to $4.00 per share during
the five year period commencing December 12, 1996. Notwithstanding any other
provision set forth in the 1996 Warrant, at any time and from time to time
during the period that the Warrant is exercisable, the Company in its sole
discretion upon appropriate notice to the registered holder may reduce the
exercise price of the 1996 Warrant or extend the period during which the 1996
Warrant is exercisable. No fractional shares of Common Stock will be issued in
connection with the exercise of the 1996 Warrants. Upon exercise, the Company
will pay the holder the value of any such fractional shares in cash, based upon
the market value of the Common Stock at such time. The 1996 Warrants may be
called for redemption by the Company at any time when the Registration Statement
(as defined herein) is current and effective at a redemption price of $.01 per
1996 Warrant upon not less than 30 days' prior written notice if the last sale
price of the Common Stock has been at least $10.00 per share (subject to
adjustment in certain circumstances) on each of the five consecutive trading
days ending on the third day prior to the date on which notice is given. Unless
extended by the Company at its discretion, the 1996 Warrants will expire at 5:00
p.m, Eastern Standard time, on the fifth anniversary date of the Closing. In the
event a holder of the 1996 Warrants fails to exercise his 1996 Warrants prior to
their expiration, such 1996 Warrants will expire and the holder thereof will
have no further rights with respect to the 1996 Warrants. A holder of the
Warrants will not have any rights, privileges or liabilities as a stockholder of
the Company prior to exercise of the 1996 Warrants. The Company is required to
keep reserved a sufficient number of authorized shares of Common Stock to permit
the exercise of the 1996 Warrants. The exercise price of the 1996 Warrants will
be subject to adjustment to protect against dilution in the event of stock
splits, stock dividends, and other combinations or recapitalizations or
distributions to the holders of Common Stock of debt or equity of the Company.
PURCHASE OPTIONS AND PURCHASE OPTION WARRANTS
The Purchase Options entitle the holders thereof to purchase a unit,
which unit consists of (i) one share of Common Stock; and (ii) one Purchase
Option Warrant at an exercise price of $6.60 per Purchase Option. The Purchase
Option Warrants underlying the Purchase Options are not redeemable by the
Company. The Purchase Options contain anti-dilution provisions providing for
adjustment of the exercise price upon the occurrence of certain events,
including the issuance of shares of Common Stock at a price per share less than
the exercise price or the market price of the Common Stock, or in the event of
any recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. The Purchase Options grant to the holders
thereof certain piggyback and demand rights for periods of seven and five years,
respectively, from October 20, 1994 with respect to the registration under the
Securities Act of the securities directly and indirectly issuable upon exercise
of the Purchase Options.
During the two-year period commencing October 20, 1995, each Purchase
Option Warrant entitles the holder thereof to purchase one share of the
Company's Common Stock at an exercise price of $5.20 per share. The Purchase
Option Warrants are not redeemable by the Company. In the event a holder of the
Purchase Option Warrants fails to exercise the Purchase Option Warrants prior to
their expiration, the Purchase Option Warrants will expire and the holder
thereof will have no further rights with respect to the Purchase Option
Warrants.
-25-
<PAGE>
SECONDARY OPTIONS
The Secondary Options entitle the holders thereof to purchase, at an
exercise price of $3.71 per share, an aggregate of 210,000 shares of Common
Stock through 5/21/2001. The rights granted by the Secondary Options, including
the exercise price and the number of shares to be received upon exercise may,
upon the occurrence of certain specified events, be adjusted. The Secondary
Options grant to the holders thereof certain registration rights with respect to
the registration under the Securities Act of the Common Stock directly and
indirectly issuable upon exercise of the Secondary Options.
COMMON STOCK PURCHASE WARRANTS
In connection with the Company's initial public offering and pursuant
to a Warrant Agreement between the Company and Continental Stock Transfer &
Trust Company as warrant agent, the Company issued 3,100,000 Common Stock
Purchase Warrants, including 800,000 Common Stock Purchase Warrants which were
issued in exchange for 800,000 bridge warrants.
At the consummation of the Secondary Offering in May 1996, the Company
issued 2,021,468 Common Stock Warrants in exchange for warrants or promissory
notes issued in connection with a January 1996 bridge financing. The terms of
such Common Stock Purchase Warrants are provided below.
Until October 20, 1997, each Common Stock Purchase Warrant will entitle
the registered holder to purchase one share of Common Stock at an exercise price
of $4.00 per share. The Common Stock Purchase Warrants are not redeemable by the
Company. No fractional shares of Common Stock will be issued in connection with
the exercise of the Common Stock Purchase Warrants. Upon exercise, the Company
will pay the holder the value of any such fractional shares in cash, based upon
the market value of the Common Stock at such time.
Unless extended by the Company at its discretion, the Common Stock
Purchase Warrants will expire at 5:00 p.m., New York time, on October 20, 1997.
In the event a holder of Common Stock Purchase Warrants fails to exercise the
Common Stock Purchase Warrants prior to their expiration, the Common Stock
Purchase Warrants will expire and the holder thereof will have no further rights
with respect to the Common Stock Purchase Warrants.
A holder of Common Stock Purchase Warrants does not have any rights,
privileges or liabilities as a stockholder of the Company prior to exercise of
the Common Stock Purchase Warrants. The Company is required to keep available a
sufficient number of authorized shares of Common Stock to permit exercise of the
Common Stock Purchase Warrants.
The exercise price of the Common Stock Purchase Warrants and the number
of shares issuable upon exercise of the Common Stock Purchase Warrants is
subject to adjustment to protect against dilution in the event of stock
dividends, stock splits, combinations, subdivisions and reclassifications. No
assurance can be given that the market price of the Common Stock will exceed the
exercise price of the Common Stock Purchase Warrants at any time during the
exercise period.
JANUARY 1994 WARRANTS
In January 1994, in connection with the 1994 Private Placement, the
Company issued January 1994 Warrants to purchase an aggregate of 340,000 shares
of Common Stock at an exercise price of $2.35 per share, all of which are
exercisable at any time prior to January 1999.
-26-
<PAGE>
To date, the Company has not paid any dividends on its Common Stock.
The payments of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. The Company
does not intend to declare any dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in the Company's business.
PLAN OF DISTRIBUTION
This offering is self-underwritten; the Company has not employed an
underwriter for the resale of Common Stock by the Selling Shareholders or the
issuance of the Common Stock upon the exercise or conversion, as the case may
be, of the Options, January 1994 Warrants, Common Stock Purchase Warrants,
Purchase Options, Purchase Option Warrants, Convertible Preferred Stock, 1996
Warrants and Secondary Options, or the issuance of the Purchase Option Warrants,
as the case may be, and will bear all expenses of this Offering.
SECONDARY SHARES AND EMPLOYEE SHARES
The Secondary Shares and Employees Shares may be reoffered and resold
for the account of the Selling Shareholders from time to time on NASDAQ or the
Boston Stock Exchange, or in negotiated transactions, at fixed prices which may
be changed or at negotiated prices. The Selling Shareholders may effect such
transactions by selling shares to or through broker-dealers, and all such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Shareholders and/or the purchasers of shares for
whom such broker-dealers may act as agent or to whom they sell as principal, or
both (which compensation as to a particular broker-dealer might be in excess of
customary commissions).
Any broker-dealer acquiring shares from the Selling Shareholders may
sell the shares either directly, in its normal market-making activities, through
or to other brokers on a principal or agency basis or to its customers. Any such
sales may be at prices then prevailing in the over-the-counter market or at
prices related to such prevailing market prices or at negotiated prices to its
customers or a combination of such methods. The Selling Shareholders and any
broker-dealers that act in connection with the sale of the Common Stock
hereunder might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act; any commissions received by them and any profit on
the resale of shares as principal might be deemed to be underwriting discounts
and commissions under the Securities Act. Any such commissions, as well as other
expenses incurred by the Selling Shareholders and applicable transfer taxes, are
payable by the Selling Shareholders.
EXERCISE OF OPTIONS, JANUARY 1994 WARRANTS, COMMON STOCK PURCHASE WARRANTS,
PURCHASE OPTIONS, PURCHASE OPTION WARRANTS, 1996 WARRANTS AND SECONDARY OPTIONS
The Options, January 1994 Warrants, Common Stock Purchase Warrants,
Purchase Options, Purchase Option Warrants, 1996 Warrants and Secondary Options
may be exercised, when exercisable, at the discretion of the holder thereof, by
the delivery to the Company at its principal executive offices at 110 West 40th
Street, Suite 2100, New York, New York 10018 (or, with respect to the Common
Stock Purchase Warrants, the Company's Warrant Agent, Continental Stock Transfer
& Trust Company, 2 Broadway, New York, New York 10004). Options, January 1994
Warrants, Common Stock Purchase Warrants, Purchase Options, Purchase Option
Warrants, 1996 Warrants and Secondary Options, accompanied by an election of
exercise and payment of the exercise price for each share of Common Stock
purchased in accordance with the terms of such Options, January 1994 Warrants,
Common Stock Purchase Warrants, Purchase Options, Purchase Option Warrants, 1996
Warrants and Secondary Options, as the case may be. Payment must be made in the
form of cash or check payable to the order of the Company (or as directed by the
Warrant Agent with respect to the Common Stock Purchase Warrants).
-27-
<PAGE>
CONVERSION OF CONVERTIBLE PREFERRED STOCK.
The Convertible Preferred Stock may be exercised, when convertible, at
the discretion of the holder thereof, by the surrender to the Company at its
principal executive offices at 110 West 40th Street, Suite 2100, New York, New
York 10018 the Convertible Preferred Stock share certificate or certificates,
duly endorsed, and shall give written notice to the Company at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Convertible Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date.
LEGAL MATTERS
The legality of the shares of Common Stock reoffered hereby has been
passed upon for the Company and the Selling Shareholders by Olshan Grundman
Frome & Rosenzweig LLP, New York, New York.
EXPERTS
The consolidated financial statements of Enteractive, Inc. and
subsidiaries as of May 31, 1996, and for each of the years in the two year
period ended May 31, 1996; have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law ("DGCL"), the
Company's Certificate of Incorporation, as amended, limits the personal
liability of a director or officer to the Company for monetary damages for
breach of fiduciary duty of care as a director. Liability is not eliminated for
(i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payment of
dividends or stock purchases or redemptions pursuant to Section 174 of the DGCL,
or (iv) any transaction from which the director derived an improper personal
benefit.
The Company has also entered into indemnification agreements with each
of its directors and executive officers. The indemnification agreements provide
that the directors and executive officers will be indemnified to the fullest
extent permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any threatened, pending or completed action, suit or proceeding,
including any derivative action, on account of their services as a director or
officer of the Company or of any subsidiary of the Company or of any other
company or enterprise in which they are serving at the request of the Company.
No indemnification will be provided under the indemnification agreements,
however, to any director or executive officer in certain limited circumstances,
including on account of knowingly fraudulent, deliberately dishonest or willful
misconduct. To the extent the provisions of the indemnification agreements
exceed the indemnification permitted by applicable law, such provisions may be
unenforceable or may be limited to the extent they are found by a court of
competent jurisdiction to be contrary to public policy.
-28-
<PAGE>
No dealer, salesman or any other person is authorized to give any information or
to make any representations in connection with this offering not contained in
this Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or solicitation of any offer to buy any
security other than the Securities offered by this Prospectus or an offer by any
person in any jurisdiction where such an offer or solicitation is not authorized
or is unlawful. The delivery of this Prospectus shall not, under any
circumstances, create any implication that information herein is correct as of
any time subsequent to its date.
TABLE OF CONTENTS
Page
----
Incorporation of Certain Documents
By Reference......................................... 3
Prospectus Summary..................................... 4
Risk Factors........................................... 7
Use of Proceeds........................................ 14
Dilution............................................... 15
Selling Shareholders................................... 17
Description of Securities.............................. 24
Plan of Distribution................................... 28
Legal Matters.......................................... 29
Experts................................................ 29
Indemnification of Officers and Directors.............. 29
16,992,169 Shares of Common Stock
4,400,000 Warrants
ENTERACTIVE, INC.
PROSPECTUS
March __, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated costs and expenses to be
borne by the Company in connection with the offering described in the
Registration Statement, other than underwriting commissions and discounts.
Registration Fee............................... $ 9,931.56
Legal Fees and Expenses........................ 15,000.00
Accounting Fees and Expenses................... 10,000.00
Blue Sky Fees and Expenses..................... 1,000.00
Miscellaneous Expenses......................... 14,068.44
-----------
Total.................................. $50,000.00
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except as hereinafter set forth, there is no statute, charter
provision, by-law, contract or other arrangement under which any controlling
person, director or officer of Enteractive, Inc. ("Company") is insured or
indemnified in any manner against liability which he may incur in his capacity
as such.
The Certificate of Incorporation, as amended ("Certificate of
Incorporation"), of the Company provides that the Company shall indemnify to the
fullest extent permitted by Delaware law any person whom it may indemnify
thereunder, including directors, officers, employees and agents of the Company.
The pertinent section of Delaware law is set forth below in full. Such
indemnification (other than as ordered by a court) shall be made by the Company
only upon a determination that indemnification is proper in the circumstances
because the individual met the applicable standard of conduct. Advances for such
indemnification may be made pending such determination. Such determination shall
be made by a majority vote of a quorum consisting of disinterested directors, or
by independent legal counsel or by the stockholders. In addition, the
Certificate of Incorporation provides for the elimination, to the extent
permitted by Delaware law, of personal liability of directors to the Company and
its stockholders for monetary damages for breach of fiduciary duty as directors.
The Company obtained a directors and officers insurance and company
reimbursement policy in the amount of $1,000,000. The policy insures directors
and officers against unindemnified loss arising from certain wrongful acts in
their capacities and would reimburse the Company for such loss for which the
Company has lawfully indemnified the directors and officers.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission with respect to
the effect of any indemnification for liabilities arising under the Securities
Act of 1933, as amended ("Securities Act").
Section 145 of the General Corporation Law provides as follows:
(a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than action by or in the right
of the corporation) by reason of the fact
II-1
<PAGE>
that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(b) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections
(a) and (b) of this section, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made (1) by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable,
or, even if obtainable a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation
as authorized in this section. Such expenses incurred by other
employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office.
II-2
<PAGE>
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent
with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation" as
referred to in this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a
person.
The Company has also agreed to indemnify each director and executive
officer pursuant to an Indemnification Agreement with each such director and
executive officer from and against any and all expenses, losses, claims, damages
and liability incurred by such director or executive officer for or as a result
of action taken or not taken while such director or executive officer was acting
in his capacity as a director, officer, employee or agent of the Company.
ITEM 16. EXHIBITS
- -------- --------
Exhibit No.
- -----------
**1.1 Form of Underwriting Agreement by and among the Company and GKN
Securities Corp. (the "Underwriter").
***1.2 Form of Underwriting Agreement by and among the Company and the
Underwriter.
**4.1 Form of Common Stock Certificate.
**4.2 Form of warrant, as amended, issued in connection with January 1994
Private Placement.
**4.6 Form of Common Stock Purchase Warrant Certificate.
**4.7 Form of Unit Purchase Option granted to the Underwriter or its
designees.
**4.8 Warrant Agreement between Continental Stock Transfer and Trust
Company and the Company.
***4.9 Form of Common Stock Purchase Option granted to the Underwriter or
its designees.
*4.10 Form of Warrant issued in connection with the 1996 Private
Placement
II-3
<PAGE>
*4.11 Certificate of Designation for Class A Convertible Preferred Stock.
*5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
*23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP, included in
Exhibit 5.
_________________
* Filed herewith
** Incorporated herein by reference to the Company's Registration
Statement on Form SB-2 [(Registration No. 33-83694)] *** Incorporated
herein by reference to the Company' Registration Statement on Form SB-2
[(Registration No. 333-22444)
ITEM 17. UNDERTAKINGS.
- -------- -------------
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of an action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing this Registration Statement on Form S-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on the 28th day of February, 1997.
ENTERACTIVE, INC.
By: /s/ Andrew Gyenes
-------------------------------
Name: Andrew Gyenes
Title: Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each of the undersigned officers and
directors of Enteractive, Inc. hereby constitutes and appoints Andrew Gyenes or
Kenneth Gruber as true and lawful attorneys-in-fact and agent with full power of
substitution and resubstitution, for them in their name in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Report and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and to prepare any and all exhibits thereto, and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done to enable Enteractive, Inc. to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission, as fully to all intents and purposes as he 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 hereof.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Andrew Gyenes Chairman of the Board and Chief February 28, 1997
- -------------------------- Executive Officer
Andrew Gyenes (Principal Executive Officer)
/s/ Michael Alford Vice President for Development February 28, 1997
- ------------------------- and Director
Michael Alford
/s/ Peter Gyenes Director February 28, 1997
- ------------------------
Peter Gyenes
/s/ Harrison Weaver Director February 28, 1997
- ------------------------
Harrison Weaver
/s/ Rino Bergonzi Director February 28, 1997
- ------------------------
Rino Bergonzi
/s/ Kenneth Gruber Vice President, Chief Financial February 28, 1997
- ------------------------ Officer (Principal Financial Officer
Kenneth Gruber and Principal Accounting Officer)
and Secretary
</TABLE>
II-5
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON THE
EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
PLEDGED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT THERETO UNDER THE ACT AND COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. EASTERN TIME, ___________________ __, 2001.
For the Purchase of
__________ shares of
Common Stock
No. _______________________
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
ENTERACTIVE, INC.
(A Delaware corporation)
Enteractive, Inc., a Delaware corporation (the "Company"), hereby
certifies that for value received, __________ or his, her or its registered
assigns (the "Registered Holder"), residing at ____________________, is
entitled, subject to the terms set forth below, to purchase from the Company,
pursuant to this Warrant ("Warrant"), at any time or from time to time until
____________ ("Expiration Date"), ________________ shares of Common Stock, $.01
par value, of the Company ("Common Stock"), at a purchase price equal to $4.00
per share of Common Stock. The number of shares of Common Stock purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Shares" and the "Purchase Price," respectively.
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by the surrender of this Warrant (with the Notice of Exercise
Form attached hereto as Exhibit I duly executed by such Registered Holder) at
the principal office of the Company, or at such other office or agency as the
Company may designate, accompanied by payment in full,in lawful money of the
United States, of an amount equal to the then applicable Purchase Price
multiplied by the number of Warrant Shares then being purchased upon such
exercise.
<PAGE>
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
l(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection I (c) below shall be deemed to have become the holder or holders
of record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of the purchase
right represented by this Warrant, the Company at its expense will use its best
efforts to cause to be issued in the name of the Registered Holder and delivered
to you:
(i) a certificate or certificates for the number of
full shares of Warrant Shares to which such Registered Holder shall be entitled
upon such exercise plus, in lieu of any fractional share to which such
Registered Holder would otherwise be entitled, a Warrant Share representing the
remainder of the fractional share to the next whole Warrant Share, and
(ii) in case such exercise is in part only, a new
warrant or warrants (dated the date hereof) of like tenor, stating on the face
or faces thereof the number of shares currently stated on the face of this
Warrant minus the number of such shares purchased by the Registered Holder upon
such exercise as provided in subsection l(a) above.
2. Adjustments.
(a) Split, Subdivision or Combination of Shares. If the
outstanding shares of the Company's Common Stock at any time while this Warrant
remains outstanding and unexpired shall be subdivided or split into a greater
number of shares, or a dividend in Common Stock shall be paid in respect of
Common Stock, or a similar change in the Company's capitalization occurs which
affects the outstanding Common Stock, as a class, then the Purchase Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall, simultaneously with the effectiveness of such subdivision or
split or immediately after the record date of such dividend (as the case may
be), be proportionately decreased. If the outstanding shares of Common Stock
shall be combined or reverse-split into a smaller number of shares, the Purchase
Price in effect immediately prior to such combination or reverse split shall,
simultaneously with the effectiveness of such combination or reverse split, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares of Warrant Shares purchasable upon the
exercise of this Warrant shall be changed to the number determined by dividing
(i) an amount equal to the number of shares issuable upon the exercise of this
Warrant immediately prior to such adjustment, multiplied by the Purchase Price
in effect immediately prior to such adjustment, by (ii) the Purchase Price in
effect immediately after such adjustment.
(b) Reclassification, Reorganization, Consolidation or Merger.
In the case of any reclassification of the Common Stock or any reorganization,
consolidation or merger of the Company with or into another corporation (other
than a merger or reorganization with respect to which the Company is the
continuing corporation and which does not result in any reclassification
-2-
<PAGE>
of the Common Stock), or a transfer of all or substantially all of the assets of
the Company, or the payment of a liquidating distribution then, as part of any
such reorganization, reclassification, consolidation, merger, sale or
liquidating distribution, the Company shall arrange for the other party to the
transaction to agree to, and lawful provision shall be made, so that the
Registered Holder of this Warrant shall have the right thereafter to receive
upon the exercise hereof (to the extent, if -any, still exercisable), the kind
and amount of shares of stock or other securities or property which such
Registered Holder would have been entitled to receive if, immediately prior to
any such reorganization, reclassification, consolidation, merger, sale or
liquidating distribution, as the case may be, such Registered Holder had held
the number of shares of Common Stock which were then purchasable upon the
exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined by the Board of Directors of the Company) shall be made in
the application of the provisions set forth herein with respect to the rights
and interests thereafter of the Registered Holder of this Warrant such that the
provisions set forth in this Section 2 (including provisions with respect to the
Purchase Price) shall thereafter be applicable, as nearly as is reasonably
practicable, in relation to any shares of stock or other securities or property
thereafter deliverable upon the exercise of this Warrant.
3. Limitation on Sales. Each holder of this Warrant acknowledges that
this Warrant and the Warrant Shares have not been registered under the
Securities Act of 1933, as now in force or hereafter amended, or any successor
legislation (the "Act"), and agrees not to sell, pledge, distribute, offer for
sale, transfer or otherwise dispose of this Warrant or any Warrant Shares issued
upon its exercise in the absence of (a) an effective registration statement
under the Act as to this Warrant or such Warrant Shares and registration or
qualification of this Warrant or such Warrant Shares under any applicable Blue
Sky or state securities law then in effect or (b) an opinion of counsel,
satisfactory to the Company, that such registration and qualification are not
required. Without limiting the generality of the foregoing, unless the offering
and sale of the Warrant Shares to be issued upon the particular exercise of the
Warrant shall have been effectively registered under the Act, the Company shall
be under no obligation to issue the shares covered by such exercise unless and
until the Registered Holder shall have executed an investment letter in form and
substance satisfactory to the Company, including a warranty at the time of such
exercise that it is acquiring such shares for its own account, and will not
transfer the Warrant Shares unless pursuant to an effective and current
registration statement under the Act or an exemption from the registration
requirements of the Act and any other applicable restrictions, in which event
the Registered Holder shall be bound by the provisions of a legend or legends to
such effect which shall be endorsed upon the certificate(s) representing the
Warrant Shares issued pursuant to such exercise. The Warrant Shares issued upon
exercise thereof shall be imprinted with legends in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT OR
PURSUANT TO AN EXEMPTION FROM
-3-
<PAGE>
THE REGISTRATION REQUIREMENTS OF SAID ACT ADD COMPLIANCE WITH
ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY
RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
4. Redemption. The Warrants may be called for redemption by the Company
at any time when the Registration Statement (as defined herein) is current and
effective at a redemption price of $.01 per Warrant upon not less than 30 days'
prior written notice if the last sale price of the Common Stock has been at
least $10.00 per share (subject to adjustment in certain circumstances) on each
of the five consecutive trading days ending on the third day prior to the date
on which notice is given.
5. Registration Rights of Warrant Holder. The Company has agreed to
register the Warrants and Warrant Shares issuable hereunder on a Registration
Statement under the Act ("Registration Statement") with the Securities and
Exchange Commission in accordance with Section 7 of the Subscription Agreement
between the Company and the initial Registered Holder. These registration rights
shall inure to the benefit of any transferee of the Warrants and the Warrant
Shares.
6. Notices of Record Date. In case:
(a) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution (other than a dividend or
distribution payable solely in capital stock of the Company or out of funds
legally available therefor), or to receive any right to subscribe for or
purchase any shares of any class or any other securities, or to receive any
other right, or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this
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<PAGE>
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least ten
(10) days prior to the record date or effective date for the event specified in
such notice, provided that the failure to mail such notice shall not affect the
legality or validity of any such action.
7. Reservation and Maintenance of Listing of Stock. The Company will at
all times reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, such shares of Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon the
exercise of this Warrant and shall use its best efforts to list and maintain the
quotation of the Warrant Shares on the same system or exchange as the Company's
outstanding Common Stock.
8. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
9. Transfers, etc.
(a) The Company will maintain or cause to be maintained a
register containing the names and addresses of the Registered Holders of this
Warrant. Any Registered Holder may change its, his or her address as shown on
the warrant register by written notice to the Company requesting such change.
(b) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
10. No Rights as Shareholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a shareholder of the Company.
11. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
-5-
<PAGE>
12. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
13. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York as such laws are applied to
contracts made and to be fully performed entirely within that state between
residents of that state.
14. Jurisdiction and Venue. The Company (i) agrees that any legal suit,
action or proceeding arising out of or relating to this Warrant shall be
instituted exclusively in New York State Supreme Court, County of New York or in
the United States District Court for the Southern District of New York, (ii)
waives any objection to the venue of any such suit, action or proceeding and the
right to assert that such forum is not a convenient forum, and (iii) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County of New
York, and the United States District Court for the Southern District of New York
in any such suit, action or proceeding, and the Company further agrees to accept
and acknowledge service or any and all process which may be served in any such
suit, action or proceeding in New York State Supreme Court, County of New York
or in the United States District Court for the Southern District of New York and
agrees that service of process upon it mailed by certified mail to its address
shall be deemed in every respect effective service of process upon it in any
suit, action or proceeding.
15. Mailing of Notices, etc. All notices and other communications under
this Warrant (except payment) shall be in writing and shall be sufficiently
given if delivered to the addressees in person, by Federal Express or similar
receipt delivery, by facsimile delivery or, if mailed, postage prepaid, by
certified mail, return receipt requested, as follows:
Registered Holder: To his or her address on page I of this Warrant.
The Company: Enteractive, Inc.
110 West 40th Street
Suite 2100
New York, New York 10018
Attn: Andrew Gyenes, Chairman
Fax: (212) 730-6045
with a copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attn: Steven Wolosky, Esq.
Fax: (212) 755-1467
Placement Agent: GKN Securities Corp.
61 Broadway
New York, New York 10017
Attn: David M. Nussbaum, Esq.
Fax: (212) 809-6189
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<PAGE>
with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
Attn: David Alan Miller, Esq.
Fax: (212) 818-8881
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be, the
delivery in person or by mailing.
ENTERACTIVE, INC.
By:/s/ Andrew Gyenes
-----------------------
Andrew Gyenes, Chairman
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<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO: Enteractive, Inc.
110 West 40th Street
Suite 2100
New York, New York 10018
1. The undersigned hereby elects to purchase shares of the Common Stock
of Enteractive, Inc., pursuant to terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full, together with all
applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares
of the Common Stock in the name of the undersigned or in such other name as is
specified below:
3. The undersigned represents that it will sell the shares of Common
Stock pursuant to an effective Registration Statement under the Securities Act
of 1933, as amended, or an exemption from registration thereunder.
----------------------------------
(Name)
-----------------------------------
(Address)
-----------------------------------
-----------------------------------
-----------------------------------
(Taxpayer Identification Number)
- ----------------------------------
[print name of Registered Holder]
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
-8-
ENTERACTIVE, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND OTHER RIGHTS AND QUALIFICATIONS OF
CLASS A PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law
of the State of Delaware
ENTERACTIVE, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That, pursuant to authority conferred upon the Board of
Directors of the Corporation (the "Board") by the Certificate of Incorporation
of said Corporation, as amended, and pursuant to the provisions of Sections 151
of the Delaware General Corporation Law, said Board duly determined that 6,400
shares of Preferred Stock, $.01 par value per share, shall be designated "Class
A Preferred Stock," and to that end the Board adopted a resolution providing for
the designation, preferences and relative, participating, optional or other
rights, and the qualifications, limitations and restrictions, of the Class A
Preferred Stock, which resolution is as follows:
RESOLVED, that the Board, pursuant to the authority
vested in it by the provisions of the Certificate of
Incorporation of the Corporation, as amended, hereby creates
a class of Preferred Stock of the Corporation, par value $.01
per share, to be designated as "Class A Preferred Stock" and
to consist of an aggregate of 6,400 shares. The Class A
Preferred Stock shall have such designations, preferences and
relative, participating, optional or other rights, and the
qualifications, limitations and restrictions as follows:
1. Designations and Amount. 6,400 shares of the Preferred
Stock of the Corporation, par value $.01 per share, shall constitute a class of
Preferred Stock designated as "Class A Convertible Preferred Stock" (the "Class
A Preferred Stock").
2. Rank. The Class A Preferred Stock shall rank senior to all
classes and series of capital stock of the Corporation now or hereafter
authorized, issued or outstanding, including, without limitation, the Common
Stock, par value $.01
<PAGE>
per share of the Corporation (the "Common Stock"), and any other classes and
series of capital stock of the Corporation now or hereafter authorized, issued
or outstanding (collectively, the "Junior Securities"). In addition, the
Corporation will not issue any class or series of any class or capital stock
which ranks pari passu with the Class A Preferred Stock with respect to rights
on liquidation, dissolution or winding up of the Corporation.
3. Dividends. The holders of the Class A Preferred Stock shall
not be entitled to receive any dividends, cash or otherwise, in connection with
such Class A Preferred Stock. No dividends shall be payable upon any Junior
Securities unless equivalent dividends, on an as-converted basis, are declared
and paid concurrently on the Class A Preferred Stock. No dividends shall be
payable on any other class of preferred stock during such time as the Class A
Preferred Stock remains outstanding.
4. Rights on Liquidation, Dissolution or Winding Up,
Etc.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to the stockholders of the Corporation, whether from
capital, surplus or earnings, shall be distributed in the following order of
priority:
(i) The holders of the Class A Preferred Stock shall
be entitled to receive, prior and in preference to any
distribution to the holders of any Junior Securities an amount
equal to the product of the stated value of the Class A
Preferred Stock ($1,250 per share) (the "Stated Value")
multiplied by 1.1 for each share of Class A Preferred Stock
then outstanding; and
(ii) If there is a distribution pursuant to Section
4(a)(i) hereof, the remaining assets of the Corporation
available for distribution, if any, to the stockholders of the
Corporation shall be distributed pro rata to the holders of
issued and outstanding shares of Common Stock.
(b) If, at any time (the "Change of Control Date"), (i) all or
substantially all of the Corporation's assets are sold as an entirety to any
person or related group of persons other than an Affiliate or Affiliates (as
hereinafter defined) of the Corporation, or (ii) the Corporation is merged into
another corporation and the Corporation is not the surviving entity of such
merger, (collectively, the "Change of Control"), then the Corporation shall
notify the holders of shares of the Class A Preferred Stock in writing of such
occurrence and shall make an
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<PAGE>
offer to purchase (the "Change of Control Offer") within the 30th day following
the Change of Control Date (the "Change of Control Payment Date") all shares of
the Class A Preferred Stock then outstanding at a purchase price per share equal
to the product of the Stated Value multiplied by 1.1 for each such share of the
Class A Preferred Stock.
Notice of a Change of Control Offer shall be mailed by the
Corporation not less than 30 days nor more than 60 days before the Change of
Control Payment Date to the holders of shares of the Class A Preferred Stock at
their last registered addresses as they appear on the books of the Corporation
or its Transfer Agent. The Change of Control Offer shall remain open from the
time of mailing until the fifth business day preceding the Change of Control
Payment Date. The notice, which shall govern the terms of the Change of Control
Offer, shall state:
(1) that the Change of Control Offer is being made pursuant to
this Section 4(b) and that all shares of the Class A Preferred
Stock will be accepted for purchase;
(2) the purchase price and the Change of Control
Payment Date;
(3) that holders of shares of the Class A Preferred Stock
electing to have shares purchased pursuant to a Change of
Control Offer will be required to surrender certificates
representing their shares of the Class A Preferred Stock with
such documentation evidencing their election to have their
shares purchased as the Corporation shall reasonably request,
to the Corporation prior to the close of business on the
Change of Control Payment Date;
(4) that holders will be entitled to withdraw their election
if the Corporation receives, not later than the close of
business on the three Business Days preceding the Change of
Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder,
the number of shares of the Class A Preferred Stock the holder
delivered for purchase and a statement that such holder is
withdrawing his election to have such shares purchased;
(5) that holders whose shares are purchased only in part will
be issued certificates for shares representing the unpurchased
portion of the shares surrendered;
-3-
<PAGE>
(6) the instructions that holders must follow in order to
tender their shares; and
(7) the circumstances and relevant facts regarding such Change
of Control.
On the Change of Control Payment Date, the Corporation shall
(i) accept for payment the shares tendered pursuant to the Change of Control
Offer and (ii) promptly mail to the holder of shares so accepted payment in an
amount equal to the purchase price.
For purposes of this Section 4(b), the term "Affiliate" shall
mean any person directly or indirectly controlling, controlled by or under
common control with the Corporation as of the Change of Control Payment Date.
For the purposes of this definition, the beneficial ownership of 10% or more of
the voting common equity of a person shall be deemed to be control.
5. Redemption of Class A Preferred Stock. (a) At any time and
from time to time, the Corporation shall have the option to (unless otherwise
prevented by law) redeem all, or any portion of on a pro-rata basis, the Class A
Preferred Stock, as provided in Section 5(b) and upon 30 days prior written
notice of the Corporation's intention to exercise the redemption option to the
holders of the then outstanding shares of Class A Preferred Stock, at a
redemption price equal to 1.1 multiplied by the Stated Value for each such share
of the Class A Preferred Stock; (b) the Corporation must redeem the Class A
Preferred Stock at 1.1 multiplied by the Stated Value in the event the
Corporation receives proceeds from (i) the exercise of any of the Corporation's
outstanding warrants to purchase Common Stock, at an exercise price of $4.00 per
share expiring October 20, 1997, or as such date may be extended or (ii) any
other equity financing, provided, however, that only 50% of the proceeds from
such other financings are required to be applied to redeem the Preferred Stock;
and (c) the Corporation may use the proceeds derived from the aforementioned
Sections (b)(i) and (ii) to redeem a portion of the Class A Preferred Stock on a
pro rata basis to the extent that the proceeds from such financings are not
sufficient to fund the redemption of all of the outstanding shares of Class A
Preferred Stock.
(b) Notice of any Class A Preferred Stock redemption date and
the redemption option exercisable in connection therewith pursuant to this
Section 5 shall be sent by the Corporation by first-class certified mail, return
receipt requested, postage prepaid, to the holders of record of shares of Class
A Preferred Stock at their respective addresses as the same shall appear on the
books of the Corporation. Such notice shall be mailed 30 days in advance of the
applicable Class A Preferred Stock redemption date. At any time on or after the
Class A
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<PAGE>
Preferred Stock redemption date, the holders of record of shares of Class A
Preferred Stock to be redeemed on such Class A Preferred Stock redemption date
in accordance with this Section 5 shall be entitled to receive the applicable
redemption price upon actual delivery to the Corporation or its agents of the
certificates representing the shares to be redeemed.
6. Voting Rights. The holders of Class A Preferred Stock shall
be entitled to vote on all matters submitted to the holders of Common Stock of
the Corporation. Each share of Class A Preferred Stock shall have that number of
votes equal to the number of shares of Common Stock into which it is then
convertible as of the record date of the proposed stockholder action. The
holders of Class A Preferred Stock shall also vote as a separate class on all
matters which the General Corporation Law of the State of Delaware specifically
requires the holders of the Class A Preferred Stock to vote as a separate class.
7. Conversion of Class A Preferred Stock.
(a) The holders of Class A Preferred Stock shall have the
right, at such holders' option, at any time after April 30, 1998 or from time to
time thereafter, to convert each share of Class A Preferred Stock into such
whole number of shares of Common Stock equal to the aggregate Stated Value of
the Class A Preferred Stock to be converted divided by the lesser of (i) $2.00
or (ii) 50% of the average closing sale price (determined as provided in Section
7(f)) for the Common Stock for the last ten trading days in the fiscal quarter
of the Corporation prior to such conversion (the "Conversion Rate"), subject to
adjustment as hereinafter provided.
(b) Before any holder of Class A Preferred Stock shall be
entitled to convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Class A Preferred Stock, and
shall give written notice to the Corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Class A Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Class A Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
-5-
<PAGE>
(c) The Corporation shall not be required to issue fractions
of shares of Common Stock upon conversion of the Preferred Stock. If any
fractions of a share would, but for this Section, be issuable upon any
conversion of Preferred Stock, in lieu of such fractional share, the Corporation
shall pay to the holder, in cash, an amount equal to the same fraction of the
Closing Price per share of Common Stock.
(d) The Corporation shall reserve and shall at all times have
reserved out of its authorized but unissued shares of Common Stock sufficient
shares of Common Stock to permit the conversion of the then outstanding shares
of the Class A Preferred Stock pursuant to this Section 7. All shares of Common
Stock which may be issued upon conversion of shares of the Class A Preferred
Stock pursuant to this Section 7 shall be validly issued, fully paid and
nonassessable. In order that the Corporation may issue shares of Common Stock
upon conversion of shares of the Class A Preferred Stock, the Corporation will
endeavor to comply with all applicable Federal and State securities laws and
will endeavor to list such shares of Common Stock to be issued upon conversion
on each securities exchange on which the Common Stock is listed and endeavor to
maintain such listing for such period of time as either the Class A Preferred
Stock or Common Stock underlying such Class A Preferred Stock remains
outstanding.
(e) The Conversion Rate in effect at any time for conversion
of Class A Preferred Stock into Common Stock pursuant to Section 7(a)(i) only
shall be subject to adjustment from time to time as follows:
(i) In the event that the Corporation shall (1) pay a dividend
in shares of Common Stock to holders of Common Stock, (2) make a
distribution in shares of Common Stock to holders of Common Stock, (3)
subdivide the outstanding shares of Common Stock into a greater number
of shares of Common Stock or (4) combine the outstanding shares of
Common Stock into a smaller number of shares of Common Stock, the
Conversion Rate in effect pursuant to Section 7(a)(i) only immediately
prior to such action shall be adjusted so that the holder of any shares
of the Class A Preferred Stock thereafter surrendered for conversion
pursuant to Section 7(a)(i) only shall be entitled to receive only that
number of shares of Common Stock which he would have owned immediately
following such action had such shares of the Class A Preferred Stock
been converted immediately prior thereto. Such adjustment shall be made
whenever any event listed above shall occur and shall become effective
(A) immediately after the record date in the case of a dividend or a
distribution and (B) immediately after the effective date in the case
of a subdivision or combination.
-6-
<PAGE>
(ii) In case the Corporation shall distribute to all holders
of Common Stock shares of any class of capital stock other than Common
Stock, evidences of indebtedness or other assets (other than cash
dividends out of current or retained earnings), or shall distribute to
substantially all holders of Common Stock rights or warrants to
subscribe for securities, then in each such case the Conversion Rate
pursuant to Section 7(a)(i) only shall be adjusted so that the same
shall equal the number determined by multiplying the number of shares
of Common Stock into which such share of the Class A Preferred Stock
was convertible immediately prior to the date of such distribution by a
fraction of which the numerator shall be the current market price
(determined as provided in Section 7(e)(iii)) of Common Stock on the
record date mentioned below, and of which the denominator shall be such
current market price of Common Stock, less the then fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive evidence of such fair market value) of the portion of the
assets so distributed or of such subscription rights or warrants
applicable to one share of Common Stock. Such adjustment shall become
effective immediately after the record date for the determination of
the holders of Common Stock entitled to receive such distribution.
(f) The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on such
date, the average of the daily reported closing bid and asked prices regular way
for ten consecutive trading days ending the last trading day before the day in
question, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or admitted to trading
on any national securities exchange, the closing sale price of the Common Stock,
or in case no reported sale takes place, the average of the daily closing bid
and asked prices for ten consecutive trading days ending the last trading day
before the day in question, on the Nasdaq SmallCap Market ("Nasdaq"), or if the
Common Stock is not quoted on Nasdaq, the OTC Electronic Bulletin Board or any
comparable system, the closing sale price or, in case no reported sale takes
place, the average of the daily closing bid and asked prices for ten consecutive
trading days ending the last trading day before the day in question, as
furnished by any two members of the National Association of Securities Dealers,
Inc. selected from time to time by the Corporation for that purpose. If the
Common Stock is not quoted on Nasdaq, the Bulletin Board or any comparable
system, the Board of Directors shall in good faith determine the current market
price on such basis as it considers appropriate.
(g) No adjustment in the Conversion Rate in Section 7(a)(i)
shall be required until cumulative adjustments
-7-
<PAGE>
result in a concomitant change of 1% or more of the Conversion Rate under
Section 7(a)(i) as in effect prior to the last adjustment of the Conversion Rate
under Section 7(a)(i); provided, however, that any adjustments which by reason
of this Section 7(g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 7 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(h) In the event that, as a result of an adjustment made
pursuant to Section 7(e), the holder of any share of the Class A Preferred Stock
thereafter surrendered for conversion shall become entitled to receive any
shares of capital stock of the Corporation other than shares of Common Stock,
thereafter the number of such other shares so receivable upon conversion of any
shares of the Class A Preferred Stock shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 7.
(i) The Corporation may make such changes in the Conversion
Rate under Section 7(a)(i), in addition to those required by Sections 7(e)(i)
and (ii), as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients thereof.
(j) Whenever the Conversion Rate is adjusted pursuant to
Section 7(a)(i), the Corporation shall promptly mail first class to all holders
of record of shares of the Class A Preferred Stock a notice of the adjustment
and shall cause to be prepared a certificate signed by a principal financial
officer of the Corporation setting forth the adjusted conversion rate and a
brief statement of the facts requiring such adjustment and the computation
thereof. Such certificate shall forthwith be filed with each transfer agent for
the shares of the Class A Preferred Stock.
(k) If any of the following shall occur: (i) any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of shares of the Class A Preferred Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), or (ii) any consolidation or
merger to which the Corporation is a party other than a merger in which the
Corporation is the continuing corporation and which does not result in any
reclassification of, or change (other than a change in name, or par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock,
then in addition to all of the rights granted to the holders of the Class
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<PAGE>
A Preferred Stock as designated herein, the Corporation, or such successor or
purchasing corporation, as the case may be, shall, as a condition precedent to
such reclassification, change, consolidation, merger, sale or conveyance,
provide in its certificate of incorporation or other charter document that each
share of the Class A Preferred Stock shall have rights and adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 7. If, in the case of any such reclassification, change,
consolidation, merger, sale or conveyance, the stock or other securities and
property (including cash) receivable thereupon by a holder of Common Stock
includes shares of capital stock or other securities and property of a
corporation other than the successor purchasing corporation, as the case may be,
in such reclassification, change, consolidation, merger, sale or conveyance,
then the certificate of incorporation or other charter document of such other
corporation shall contain such additional provisions to protect the interests of
the holders of shares of the Class A Preferred Stock as the Board shall
reasonably consider necessary by reason of the foregoing. The provision of this
Section 7(k) shall similarly apply to successive consolidations, mergers, sales
or conveyances.
(l) In the event any shares of Class A Preferred Stock shall
be converted pursuant to Section 7 hereof, the shares so converted shall be
cancelled.
(m) The Corporation will not, by amendment of its Certificate
of Incorporation, as amended, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 7 and in the taking of all such action as may be necessary or
appropriate in
-9-
<PAGE>
order to protect the conversion rights of the holders of the Class A Preferred
Stock against impairment.
Such resolution was signed by the Chairman of the Board and
Secretary of the Corporation.
IN WITNESS WHEREOF, we have executed this Certificate of
Designation this 11th day of December, 1996.
ENTERACTIVE, INC.
By: /s/ Andrew Gyenes
------------------------------
Name: Andrew Gyenes
Title: Chairman of the Board
By: /s/ Kenneth Gruber
-----------------------------
Name: Kenneth Gruber
Title: Chief Financial Officer
and Secretary
-10-
<PAGE>
ENTERACTIVE, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND OTHER RIGHTS AND QUALIFICATIONS OF
CLASS A PREFERRED STOCK
Pursuant to Section 151(g) of the
General Corporation Law
of the State of Delaware
ENTERACTIVE, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:
That, pursuant to authority conferred upon the Board of Directors of
the Corporation (the "Board"), the Board hereby amends the introductary
paragraph of the Certificate of Designations, Preferences and Other Rights and
Qualifications of Class A Preferred Stock of the Corporation so that they hereby
are amended to read as follows:
FIRST: That, pursuant to authority conferred upon the Board of
Directors of the Corporation (the "Board") by the Certificate of Incorporation
of said Corporation, as amended, and pursuant to the provisions of Sections 151
of the Delaware General Corporation Law, said Board duly determined that 6,720
shares of Preferred Stock, $.01 par value per share, shall be designated "Class
A Preferred Stock," and to that end the Board adopted a resolution providing for
the designation, preferences and relative, participating, optional or other
rights, and the qualifications, limitations and restrictions, of the Class A
Preferred Stock, which resolution is as follows:
RESOLVED, that the Board, pursuant to the authority
vested in it by the provisions of the Certificate of
Incorporation of the Corporation, as amended, hereby creates
a class of Preferred Stock of the Corporation, par value $.01
per share, to be designated as "Class A Preferred Stock" and
to consist of an aggregate of 6,720 shares. The Class A
Preferred Stock shall have such designations, preferences and
relative, participating, optional or other rights, and the
qualifications, limitations and restrictions as follows:
1. Designations and Amount. 6,720 shares of the Preferred
Stock of the Corporation, par value $.01 per share, shall constitute a class of
Preferred Stock designated as "Class A Convertible Preferred Stock" (the "Class
A Preferred Stock")."
<PAGE>
The foregoing amendment to the Certificate of Designations,
Preferences and Other Rights and Qualifications of Class A Preferred Stock was
duly adopted by the Corporation's Board of Director in accordance with the
provisions of the General Corporation Law of the State of Delaware.
-2-
<PAGE>
IN WITNESS WHEREOF, we have executed this Certificate of
Amendment of Certificate of Designation this 12th day of December, 1996.
ENTERACTIVE, INC.
By: /s/ Andrew Gyenes
--------------------------------
Name: Andrew Gyenes
Title: Chairman of the Board and
Chief Executive Officer
By: /s/ Kenneth Gruber
------------------------------
Name: Kenneth Gruber
Title: Chief Financial Officer
and Secretary
-3-
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
505 PARK AVENUE
NEW YORK, NEW YORK 10022
Telephone: 212-753-7200
March 4, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Enteractive, Inc.
Registration Statement on Form S-3
Gentlemen:
Reference is made to a Registration Statement on Form S-3 dated March
3, 1997, (the "Registration Statement"), filed with the Securities and Exchange
Commission by Enteractive, Inc., a Delaware corporation (the "Company"). The
Registration Statement relates to an aggregate of 16,992,169 shares (the
"Shares") of the Company's Common Stock, $.01 par value and 4,200,000
warrants.
We advise you that we have examined original or copies certified or
otherwise identified to our satisfaction of the Certificate of Incorporation and
By-laws of the Company, minutes of meetings of the Board of Directors and
shareholders of the Company, the Registration Statement, and such other
documents, instruments and certificates of officers and representatives of the
Company and public officials, and we have made such examination of the law as we
have deemed appropriate as the basis for the opinion hereinafter expressed. In
making such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to original documents of documents submitted to us as certified or photostatic
copies.
<PAGE>
March 4, 1997
Page -2-
Based upon the foregoing, we are of the opinion that:
(a) The Shares have been duly authorized and reserved for and, either
are legally issued, fully paid and non-assessable or when issued upon exercise
of the underlying warrant or option, will be legally issued, fully paid and
non-assessable.
(b) The Warrants have been duly authorized and issued.
Please be advised that of the 16,992,169 Shares, 4,200,000 Shares are
issuable upon the conversion of Series A Convertible Stock ("Convertible
Preferred Stock"). As described in the Registration Statement, there are
currently 6,720 shares of Convertible Preferred Stock issued and outstanding.
The holders of the Convertible Preferred Stock have the right, at the Holder's
option, at any time after April 30, 1998, or from time to time thereafter, to
convert each share of Convertible Preferred Stock into such whole number of
shares of Common Stock equal to the aggregate stated value ($1,250) of the
Convertible Preferred Stock to be converted divided by the lesser of (i) $2.00
or (ii) 50% of the average closing sale price for the Common Stock for the last
ten trading days in the fiscal quarter of the Company prior to such conversion.
All information in this opinion assumes and the opinion is subject to the fact
that the stated value of the Convertible Preferred Stock will be divided by
$2.00 and accordingly, this opinion has been prepared on the basis that
4,200,000 shares of Common Stock may be issued upon the conversion of the
Convertible Preferred Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and we further consent to the reference to this firm
under the caption "Legal Matters" in the Registration Statement and the
Prospectus forming a part thereof.
Very truly yours,
/s/ OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
--------------------------------------
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
KPMG Peat Marwick LLP
The Board of Directors
Enteractive, Inc.:
We consent to the use of our report incorporated herein (Form S-3) by reference
and to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
---------------------
KPMG PEAT MARWICK LLP
New York, New York
February 26, 1997
