As filed with the Securities and Exchange Commission on January 30, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
SOFTNET SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1817252
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
520 Logue Avenue
Mountain View, CA 94043
(650) 965-3700
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
A.J.R. Oosthuizen
Chief Executive Officer and President
SoftNet Systems, Inc.
520 Logue Avenue
Mountain View, CA 94043
(650) 965-3700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
___________________________
Copy To:
H. George Mann, P.C.
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606-5096
___________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
___________________________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /__/
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. /__/
__________________________
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE REGISTRATION
TO BE REGISTERED REGISTEREd PRICE PER UNIT(1) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par 2,697,320(2)(3) $6.4375 $17,364,000 $5,122.38
value(2) . . . . . . . . . . .
(1) Estimated solely for purposes of calculating the amount of the registration fee pursuant to Rule 457(c) of the
Securities Act of 1933, based on the average of the high and low sales price of a share of Common Stock of the
Registrant on the American Stock Exchange as reported in the consolidated reporting system on January 26, 1998.
(2) Consists of Common Stock issuable upon exercise of stock purchase warrants and upon conversion of Series A
Convertible Preferred Stock.
(3) The shares of Common Stock set forth in the Calculation of Registration Fee Table includes a good faith estimate of
the number of shares of Common Stock underlying the Series A Convertible Preferred Stock (including shares issued as
a result of any premium paid in Common Stock or as a result of conversion default payments) and the warrants, and,
pursuant to Rule 416 of the Securities Act of 1933, as amended (the "Securities Act"), such additional number of
shares of the Registrant's Common Stock that may become issuable as a result of any stock splits, stock dividends or
anti-dilution provisions (including by reason of the floating rate conversion price mechanism and certain other
adjustments, as set forth in the Certificate of Amendment designating the Series A Convertible Preferred Stock).
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED JANUARY 30, 1998
PROSPECTUS
SOFTNET SYSTEMS, INC.
2,697,320 Shares of Common Stock
($0.01 par value)
This Prospectus covers the sale from time to time of up to 2,697,320
issued and outstanding shares (the "Shares") of Common Stock, par value $0.01
per share ("Common Stock"), of SoftNet Systems, Inc., a New York corporation
(the "Company"), by certain shareholders of the Company (the "Selling
Shareholders"). The Selling Shareholders or their respective pledgees,
donees, transferees or other successors in interest may from time to time
sell the Shares directly or through one or more broker-dealers, in one or
more transactions on the American Stock Exchange, in privately negotiated
transactions or otherwise, at prices related to the prevailing market prices
or at negotiated prices. See "Plan of Distribution."
The Shares consist of Common Stock issued or issuable upon exercise of
outstanding stock purchase warrants and the Company's Series A Convertible
Preferred Stock, par value $0.01 per share (the "Convertible Preferred
Stock"). In addition, the Shares include a good faith estimate of the number
of shares underlying the Convertible Preferred Stock and, pursuant to Rule
416 of the Securities Act of 1933, as amended (the "Securities Act"), the
actual number of shares offered hereby includes such additional number of
shares of Common Stock as may become issuable upon conversion of the
Convertible Preferred Stock or as a result of stock splits, stock dividends
and anti-dilution provisions (including, by reason of any reduction in the
floating rate conversion price mechanism and certain other adjustment
mechanisms of the Convertible Preferred Stock).
The Company will not receive any of the proceeds from the sale of the
Shares. The Company has agreed with the Selling Shareholders to register the
Shares offered hereby and to pay the expenses incident to the registration
and offering of the Shares, except that the Selling Shareholders will pay any
applicable underwriting commissions and expenses, brokerage fees and transfer
taxes, as well as the fees and disbursements of counsel to and experts for
the Selling Shareholders.
The Company's Common Stock is listed on the American Stock Exchange
under the symbol SOF. On January 29, 1998, the last reported sales price of
the Common Stock on the American Stock Exchange was $6-5/8 per share.
SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Prospectus is to be used solely in connection with sales of the
Shares from time to time by the Selling Shareholders.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF
ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
The date of this Prospectus is _____________, 1998.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF 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.
AVAILABLE INFORMATION
SoftNet Systems, Inc. (the "Company") is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements, the registration statement
related to this offering and other information filed by the Company may be
inspected and copied at the public reference facilities of the Commission
located at 450 Fifth Street N.W., Washington D.C. 20549 and at the
Commission's regional offices located at Seven World Trade Center, Suite
1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates or accessed electronically
on the Commission's home page on the World Wide Web at http://www.sec.gov.
In addition, reports, proxy statements and other information filed by the
Company may be inspected at the offices of the American Stock Exchange, 86
Trinity Place, New York, New York 10006, upon which the Common Stock of the
Company is traded.
The Company has filed with the Commission, a Registration Statement on
Form S-3 (together with all amendments, schedules and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), covering the sale of the Shares by the Selling
Shareholders from time to time. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement. Statements made in the
Prospectus as to the contents of any contract, agreement or other document
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement for a
more complete description. Each such statement is qualified in its entirety
by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File
No. 1-5270) pursuant to the Exchange Act are incorporated herein by
reference:
1. The Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1997 ("Form 10-K").
2. The Company's Current Report on Form 8-K dated January 12,
1998.
3. The description of the Company's Common Stock contained in
the Company's Current Report on Form 8-K dated February 3, 1998.
4. The Company's amendment to its Form 10-Q for the quarter ended
December 31, 1996 filed with the Commission on January 27, 1998.
5. The Company's amendment to its Form 10-Q for the quarter ended
March 31, 1997 filed with the Commission on January 27, 1998.
6. The Company's amendment to its Form 10-Q for the quarter ended
June 30, 1997 filed with the Commission on January 28, 1998.
7. The Company's amendment to its Form 10-K for the year ended
September 30, 1997 filed with the Commission on January 28, 1998.
8. The Company's Schedule 14A filed with the Commission on January
28, 1998.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of the offering made hereby
shall be deemed to be incorporated by reference in this Prospectus and to be
a part hereof from the date such documents were filed. Any statement
contained herein or 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
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, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the
documents incorporated by reference herein (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to Mark
Phillips, Treasurer, SoftNet Systems, Inc., 520 Logue Avenue, Mountain View,
California 94043.
THE COMPANY
SoftNet Systems, Inc. is engaged in the business of developing,
marketing, installing and servicing electronic information and document
management systems that allow customers to electronically request and
electronically receive information. The Company's strategy includes the
selling of products and services that, when taken together with a customer's
existing computer, data and voice communication systems, can consolidate all
information within an enterprise into a common, electronically accessible
information warehouse, regardless of geographic diversity. The Company
operates through three segments: document management, telecommunications and
Internet services.
The document management segment designs, develops, and manufactures
electronic and film based imaging products. This segment provides
intelligent document management solutions to its customers, utilizing
cost-saving automation. All of the Company's products, both hardware and
software, are based on industry standard client-server architecture,
providing flexibility to connect to a wide variety of information systems.
The hardware manufactured by the Company includes a family of Computer Output
to Microfilm ("COM") printers. The Company's software principally captures
information from a variety of sources, intelligently indexes the data and
outputs it to a variety of storage media including optical disk, magnetic
disk and tape, CD-ROM, and microfilm and microfiche. The image source and
storage media are transparent to the system user.
The telecommunications segment provides communication solutions through
the design, implementation, maintenance and integration of voice, data and
video communication equipment and service. The telecommunications segment
operates throughout the Midwest with offices in Kansas City, Kansas and the
greater metropolitan area, Columbia, Missouri; Wichita, Kansas and Milwaukee,
Wisconsin. The Company's telecommunications product offerings include third
party manufactured telephone systems and call processing systems (including
call centers, voice messaging, interactive voice response ("IVR") and
computer telephone integration ("CTI")). Additionally, the Company develops
software for IVR and CTI applications, sells local and long distance network
services, provides maintenance services for existing customers and provides
cabling and data communications. The telecommunications segment markets its
products and services primarily to customers with 25 or more telephones
located in the Midwest.
The Internet services segment provides Internet access as well as World
Wide Web and database development. It is also a provider of Internet
services over the cable television infrastructure to consumers and
businesses. The segments primary service offering, the ISP ChannelSM, allows
small to middle market cable and wireless cable operators to connect their
subscribers to the Internet via cable modems. For businesses, the segment
offers services which provide a platform for Internet and Intranet
connectivity solutions and networked business applications over both cable
infrastructure and leased telecommunication lines. By combining an Internet
distributed architecture with cable and telephone technology, Media City
World, a wholly-owned subsidiary of Softnet, services provide a compelling
platform for nationwide delivery of network-based business applications.
The Company maintains corporate offices in Mountain View, California.
The Company was incorporated in New York in December 1956. Its principal
executive offices are located at 520 Logue Avenue, Mountain View, California
94043 and its telephone number is (650) 975-3700.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Shareholders.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Prospectus contains forward-looking statements that involve risks
and uncertainties. The actual results of the Company could differ
significantly from those set forth herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed in "Risk Factors" as well as those discussed elsewhere in the
Company's Form 10-K. Statements contained herein that are not historical
facts are forward-looking statements that are subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. Words such
as "believes", "anticipates", "expects", "intends" and similar expressions
are intended to identify forward-looking statements, but are not the
exclusive means of identifying such statements. A number of important factors
could cause the Company's actual results for fiscal 1998 and beyond to differ
materially from past results and those expressed in any forward-looking
statements made by, or on behalf of, the Company. These factors include,
without limitation, those listed in the following "Risk Factors" section.
RISK FACTORS
LIMITED OPERATING HISTORY; LACK OF PROFITABLE OPERATIONS
The Company currently operates in three industries; telecommunications,
document management and Internet services. On September 15, 1995, a wholly-
owned subsidiary of the Company merged with Kansas Communications, Inc.
("KCI"), a company which sells and services telephone systems, third-party
computer hardware and application oriented peripheral products such as voice
mail, automated attendant systems, interactive voice response and video
conferencing systems. On December 29, 1995, KCI acquired the Milwaukee
operations of Executone Information Systems, Inc., in a business combination
accounted for as a purchase. KCI represents the telecommunications segment of
the Company. Also on September 15, 1995, the Company acquired Micrographic
Technology Corporation ("MTC") in a business combination accounted for as a
purchase. MTC is a designer, developer, manufacturer and integrator of
comprehensive, non-paper based systems and components that enable MTC to
deliver to its customers cost-effective solutions for storage, indexing
and/or distribution of high-volume output data streams. MTC represents the
document management segment of the Company. On June 21, 1996, the Company
acquired MediaCity World, Inc. ("MCW"), in a business combination accounted
for as a purchase. MCW is an Internet service provider whose services include
business to business Internet access and web development for sales, marketing
and electronic commerce applications. MCW also provides the ISP Channel
service, a no-cost solution for small to middle market cable and wireless
cable operators that allows these operators to provide broadband Internet
access and multimedia voice and video services to their subscribers over the
existing cable plant.
The Company has sustained substantial losses in each of the fiscal years
that it has operated in these three industries. In addition, the Company will
require significant funds to continue to implement its business strategies.
Factors which have had an influence on and may continue to influence the
Company, resulting in continued losses, include (i) the Company's expense
levels are based on anticipated future revenues and are relatively fixed in
the short-term; (ii) the Company incurs significant expenses in connection
with research and development of new product and service offerings, and the
continued development of its direct and indirect selling and marketing
efforts; and (iii) the Company may continue to incur charges related to
acquisitions, divestitures, business alliances or changing technologies. As a
result, there can be no assurance that the Company will be profitable in the
future or that available funds, together with funds provided by operations
will be sufficient to fund the Company's ongoing operations. If the Company
has insufficient funds, there can be no assurance that additional financing
can be obtained on acceptable terms, if at all. The absence of such financing
would have a material adverse effect on the Company's business, including a
possible reduction or cessation of operations.
FLUCTUATIONS IN QUARTERLY RESULTS; LACK OF BACKLOG; VOLATILITY OF STOCK PRICE
Results of operations have fluctuated and may continue to fluctuate
significantly from quarter to quarter. Factors which have had an influence on
and may continue to influence the Company's results of operations in a
particular quarter include the size and timing of customer orders and
subsequent shipments, customer order deferrals in anticipation of new
products and services, timing of product introductions or enhancements by the
Company or its competitors, market acceptance of new products and services,
technological changes in the industry, competitive pricing pressures,
accuracy of customer forecasts of end-user demand, changes in the Company's
operating expenses, personnel changes, foreign currency fluctuations, changes
in the mix of products sold, quality control of products sold, disruption in
sources of supply, capital spending, delays of payments by customers and
general economic conditions. Product sales to the Company's customers
typically involve long approval and procurement cycles and can involve large
purchase commitments. Accordingly, cancellation or deferral of one or a small
number of orders could cause significant fluctuations in the Company's
quarterly results of operations.
Because the Company generally ships products within a short period after
receipt of an order, the Company typically does not have a material backlog
of unfilled orders, and revenues in any quarter are substantially dependent
on orders booked in that quarter. The Company's expense levels are based in
large part on anticipated future revenues and are relatively fixed in the
short-term. Therefore, the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected shortfall of orders.
Accordingly, any significant shortfall of demand in relation to the Company's
expectations or any material delay of customer orders would have an almost
immediate adverse impact on the Company's business and results of operations.
The Company expects to continue to evaluate new product and service
opportunities and engage in extensive research and development activities.
This will require the Company to continue to invest in research and
development and sales and marketing, which could adversely affect short-term
results of operations. The Company believes that its future revenue growth
and profitability will principally depend on its success in developing new
products and services. Failure to increase revenues from new products and
services, whether due to lack of market acceptance, competition,
technological change or otherwise, would have a material adverse effect on
the Company's business and quarterly results of operations.
As a result, the Company believes that period-to-period comparisons of
its revenues and results of operations are not necessarily meaningful and
should not be relied upon as indicators of future performance. Due to the
aforementioned factors, among others, it is possible that the Company's
operating results will be below the expectations of public market analysts
and investors. In such event, the price of the Company's Common Stock could
significantly decline. In addition, the market price for the Company's Common
Stock has been volatile and in the future could be adversely affected. Market
fluctuations may adversely affect the market price of the Company's Common
Stock without regard to the operating performance of the Company. In
addition, the Company believes that factors such as announcements of
developments related to the Company's business, fluctuations in the Company's
results of operations, sales of substantial amounts of securities of the
Company into the marketplace, general conditions in the Company's industries
or the worldwide economy, an outbreak of hostilities, a shortfall in revenues
or earnings compared to analysts' expectations, changes in analysts'
recommendations or projections, announcements of new products by the Company
or its competitors or developments in the Company's relationships with its
suppliers or customers could cause the price of the Company's Common Stock to
fluctuate in the future, perhaps substantially. There can be no assurance
that the market price of the Company's Common Stock will not experience
significant fluctuations in the future, including fluctuations that are
unrelated to the Company's performance. General market price declines or
market volatility in the future could adversely affect the market price of
the Common Stock, and the current market price of the Common Stock may not be
indicative of future market prices.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS
There can be no assurance that the Company's future development efforts
will result in commercially successful products or that the Company's
products and services will not be rendered obsolete by changing technology,
new industry standards or new product announcements by competitors. The
markets for the Company's products and services are characterized by intense
competition, rapid technological advances, evolving industry standards,
changes in end-user requirements, frequent new product introductions and
enhancements, and rapidly evolving, alternative service offerings. If
technologies or standards applicable to the Company's products or service
offerings become obsolete or fail to gain widespread commercial acceptance,
then the Company's business and results of operations will be materially
adversely affected. Moreover, the introduction of products embodying new
technology or the emergence of new industry standards could render the
Company's existing products, as well as products under development, obsolete
and unmarketable.
The Company's past sales have resulted, to a significant extent, from
its ability to anticipate changes in technology and industry standards, and
to develop and introduce new and enhanced products and service offerings. The
Company's continued ability to adapt to such changes will be a significant
factor in maintaining or improving its competitive position and its prospects
for growth. Due to rapid technological changes in the Internet,
telecommunication and document imaging industries, the lengthy product
approval and purchase processes of the Company's customers and the Company's
reliance on third-party technology for the development of new products and
service offerings, however, there can be no assurance that the Company will
successfully introduce new products and services on a timely basis or achieve
sales of new products and services in the future. In addition, there can be
no assurance that the Company will have the financial and manufacturing
resources necessary to continue to successfully develop new products based on
emerging technology or to otherwise successfully respond to changing
technology and/or industry standards. Moreover, due to intense competition,
there may be a time-limited market opportunity for the Company's cable-based
consumer and business Internet services. There can be no assurance that the
Company will be successful in achieving widespread acceptance of its services
before competitors offer products and services with speed and performance
similar to the Company's current offerings.
DEPENDENCE ON THE INTERNET; SECURITY RISKS; GOVERNMENT REGULATION
Market acceptance of the Company's Internet services is substantially
dependent upon the adoption of the Internet for communications, entertainment
and commerce. In addition, critical issues concerning the commercial use of
the Internet remain unresolved and may affect the growth of Internet use,
especially in the business and consumer markets targeted by the Company.
Despite growing interest in the commercial possibilities for the Internet,
many businesses and consumers have been deterred from purchasing Internet
access services for a number of reasons, including inconsistent quality of
service, lack of availability of cost-effective, high-speed service, a
limited number of local access points for corporate users, inability to
integrate business applications on the Internet, the need to deal with
multiple and frequently incompatible vendors, inadequate protection of the
confidentiality of stored data and information moving across the Internet and
a lack of tools to simplify Internet access and use. The adoption of the
Internet for commerce and communications, particularly by those individuals
and enterprises that have historically relied upon alternative means of
commerce and communication, generally requires understanding and acceptance
of a new way of conducting business and exchanging information. In
particular, enterprises that have already invested substantial resources in
other means of conducting commerce and exchanging information, or in
relationships with other Internet service providers ("ISPs"), may be
reluctant and slow to adopt a new strategy that may make their existing
personnel, infrastructure and Internet service provider relationship
obsolete. If the market fails to develop, develops more slowly than expected
or market competition increases, the Company's business, operating results
and financial condition may be materially adversely affected.
Despite the implementation of security measures, the Company's or the
Company's cable affiliates' networks may be vulnerable to unauthorized
access, computer viruses and other disruptive problems. Internet service
providers and online service providers have in the past experienced, and may
in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. Unauthorized access could also potentially jeopardize
the security of confidential information stored in the computer systems of
the Company and its subscribers, which may result in liability of the Company
to its subscribers and also may deter potential subscribers. Although the
Company intends to continue to implement industry-standard security measures,
such measures have been circumvented in the past, and there can be no
assurance that measures implemented by the Company will not be circumvented
in the future. Moreover, the Company has no control over the security
measures that the Company's cable affiliates adopt. Eliminating computer
viruses and alleviating other security problems may require interruptions,
delays or cessation of service to the Company's subscribers, which could have
a material adverse effect on the Company's business, operating results and
financial condition.
Although the Company's services are not directly subject to current
regulations of the Federal Communications Commission ("FCC") or any other
federal or state communications regulatory agency, changes in the regulatory
environment relating to the Internet connectivity and the telecommunications
markets, including regulatory changes that, directly or indirectly, affect
telecommunications costs, limit usage of subscriber-related information or
increase the likelihood or scope of competition from the Regional Bell
Operating Companies ("RBOCs") or other telecommunications companies, could
affect the prices at which the Company may sell its services. For example,
proposed regulations by the FCC would require discounted Internet
connectivity rates for schools and libraries, which would limit revenues
without reducing related costs. The Company cannot predict the impact, if
any, that future regulation or regulatory changes might have on its business.
In addition, regulation of cable television rates may affect the speed at
which the Company's cable affiliates upgrade their cable infrastructures to
two-way hybrid fiber coaxial cable ("HFC"). Currently, the Company's cable
affiliates have generally elected to classify the distribution of the
Company's services as "additional cable services" under their respective
franchise agreements, and to pay franchise fees in accordance therewith.
Local franchise authorities may attempt to subject the cable affiliates to
higher or other franchise fees or taxes or otherwise seek to require them to
obtain additional franchises in connection with their distribution of the
Company's services. There are thousands of franchise authorities in the
United States alone, and thus it will be difficult or impossible for the
Company or its cable affiliates to operate under a unified set of franchise
requirements. It is possible that governmental authorities may attempt to
impose additional fees or regulations on cable affiliates carrying the
Company's services. In the event that the FCC or another governmental agency
were to classify the cable system operators as "common carriers" of Internet
services, or cable system operators were to seek such classification as a
means of protecting themselves against liabilities, the Company's rights as
the exclusive Internet Service Provider over the systems of certain of the
cable affiliates could be lost. In addition, if the Company or its cable
affiliates were classified as common carriers, they could be subject to
government-regulated tariff schedules for the amounts they could charge for
their services. To the extent the Company increases the number of foreign
jurisdictions in which it offers its services, the Company will be subject to
additional governmental regulation. Any future implementation of any of the
aforementioned regulations, or any other regulation not necessarily discussed
herein, could have a material adverse effect on the Company's business,
operating results and financial condition.
In addition, the Company's business and results of operations may also be
adversely affected by the imposition of certain tariffs, duties and other
import restrictions on components which the Company obtains from non-domestic
suppliers. Changes in or future laws or regulations, in the U.S. or
elsewhere, could materially adversely affect the Company's business and
results of operations.
NEED FOR ADDITIONAL FINANCING
The Company must continue to enhance and expand its product and service
offerings in order to maintain its competitive position and increase its
market share. As a result, the continuing operations of the Company's
business may require substantial capital infusions. Whether or when the
Company can achieve cash flow levels sufficient to support its operations,
its development of new products and services, and its expansion of its
Internet business cannot be accurately predicted. Unless such cash flow
levels are achieved, the Company will require additional borrowings or the
sale of debt or equity securities, or some combination thereof, to provide
funding for its operations. In December 31, 1997, the Company completed a
private placement of Series A Convertible Preferred Stock for $5 million to
fund its expansion of the Company's Internet business. In the event that the
Company cannot generate sufficient cash flow from its operations, or is
unable to borrow or otherwise obtain additional funds to finance its
operations when needed, the Company's financial condition and results of
operations could be adversely affected.
COMPETITION
The markets for the Company's products and services are intensely
competitive and the Company expects competition to increase in the future.
Many of the Company's competitors and potential competitors have greater
financial, technological, manufacturing, marketing and human resources than
the Company. Any increase in competition could reduce the Company's gross
margin, require increased spending by the Company on research and development
and sales and marketing, and otherwise materially adversely affect the
Company's business and results of operations. In the document management
industry, the Company competes on the basis of breadth of offering different
document management solutions, cost, flexibility, and customer service. The
Company has a number of direct competitors, including Anacomp and Mobius.
These competitors have longer operating histories, greater name recognition,
and significantly greater financial, technical, and marketing resources than
the Company. In the telecommunications industry the Company competes on the
basis of customer service, flexibility and breadth of offering different
technological products and solutions. The Company competes with Lucent
Technologies, Inc., Northern Telecom, Siemens and the RBOCs. These
competitors have longer operating histories and significantly greater
financial, technical, marketing, and other resources, as well as greater name
recognition, than the Company. In addition, the RBOCs are currently subject
to a variety of government regulations limiting the manufacture, marketing
and sale of certain products and services in the telecommunications market.
If any of these restrictions were to be eliminated or lessened, the Company's
business could be materially adversely affected. Furthermore, the markets for
the Company's Internet products and services are considered to be especially
competitive and the Company expects this competition to intensify in the
future. Some of the Company's most direct competitors in the access markets
are Internet Service Providers, national long distance carriers and local
exchange carriers, wireless service providers, and Internet content
aggregators. Several competitors in this area are AT&T, BBN Corporation,
Earthlink Network, Inc., Netcom On-Line Communications Services, Inc., PSInet
Inc. and WorldCom, Inc., who provide basic Internet access to residential
consumers and businesses, generally using existing telephone network
infrastructures. This method is widely available and inexpensive. Barriers to
entry are low, resulting in a highly competitive and fragmented market. Some
of the Company's competitors are offering diversified packages of
telecommunications services, including Internet access service, to
residential customers and could bundle such services together, which could
place the Company at a competitive disadvantage. Many of these competitors
are offering (or may soon offer) technologies that will attempt to compete
with some or all of the Company's high-speed data service offerings. The
bases of competition in these markets include transmission speed, reliability
of service, ease of access, price/performance, ease-of-use, content quality,
quality of presentation, timeliness of content, customer support, brand
recognition, operating experience and revenue sharing. The Company also
competes with other cable-based data services that are seeking to contract
with cable system operators to bring their services into geographic areas
that are not covered by an exclusive relationship between the Company and its
cable affiliates. The Company's competitors in the cable-based services
market are those cable companies that have developed their own cable-based
services and market those services to unaffiliated cable system operators
that are planning to deploy data services and with which the Company would
like to work. Several cable system operators, including TCI, Cox, Comcast,
Time Warner Inc. and the Continental Cablevision have deployed high-speed
Internet access services over their existing local hybrid fiber coaxial cable
networks. TCI, Cox and Comcast market through @Home while Time Warner plans
to market the Road Runner service through Time Warner's own cable systems as
well as to other cable system operators nationwide. Many of the Company's
competitors and potential competitors have substantially greater financial,
technical and marketing resources, larger subscriber bases, longer operating
histories, greater name recognition and more established relationships with
advertisers and content and application providers than the Company. Such
competitors may be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and devote substantially more
resources to developing Internet services or on-line content than the
Company. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive
pressures faced by the Company will not materially adversely affect the
Company's business, operating results or financial condition. Further, as a
strategic response to changes in the competitive environment, the Company may
make certain pricing, service or marketing decisions or enter into
acquisitions or new ventures that could have a material adverse effect on the
Company's business, operating results or financial condition.
DEPENDENCE ON THIRD-PARTY TECHNOLOGY
Some of the Company's products and service offerings incorporate
technology developed and owned by third parties. Consequently, the Company
must rely upon third parties to develop and introduce technologies which
enhance the Company's current products and enable the Company, in turn, to
develop its own products on a timely and cost-effective basis to meet
changing customer needs and technological trends in its industries. Any
impairment or termination of the Company's relationship with any licensers of
third-party technology would force the Company to find other developers on a
timely basis or develop its own technology. There can be no assurance that
the Company will be able to obtain the third-party technology necessary to
continue to develop and introduce new and enhanced products, that the Company
will obtain third-party technology on commercially reasonable terms or that
the Company will be able to replace third-party technology in the event such
technology becomes unavailable, obsolete or incompatible with future versions
of the Company's products. The absence of or any significant delay in the
replacement of third-party technology would have a material adverse effect on
the Company's business and results of operations.
EXCLUSIVITY CONTRACTS; DEPENDENCE ON SOLE SUPPLIERS
Certain key products resold by the Company are currently contracted
exclusively for distribution in certain of the Company's markets. For
instance, the Company's telecommunications division currently maintains an
exclusivity contract with Executone Information Systems, Inc., for the resale
of their products in each of their defined markets. For the year ended
September 30, 1997, such products accounted for approximately 30% of the
Company's telecommunications business revenues, or 13% of the Company's total
revenues. Any change in the exclusivity provisions of these types of
contracts, or loss thereof, could have a materially adverse effect on the
Company and its results of operations.
In the Company's manufacturing operations, certain key components may be
available to the Company only through a limited number of suppliers. There
can be no assurance that delays in key components or product deliveries will
not occur in the future due to shortages resulting from the limited number of
suppliers, the financial or other difficulties of such suppliers or the
possible limited availability in the suppliers underlying raw materials. The
inability to obtain sufficient key components or to develop alternative
sources for such components, if and as required in the future, could result
in delays or reductions in product shipments, which in turn could have a
material adverse effect on the Company's customer relationships, its business
and its results of operations.
ABILITY TO EXPAND INTERNET BUSINESS
The Company's current strategy for growth is to focus on expanding its
Internet business. As the Company recently entered the Internet business
with its acquisition of MCW in June 1996, it has very limited operating
history in this area and consequently has limited experience in the Internet
business. The successful expansion of the Company's Internet business will
require strategies and operations that are different from those historically
used by the Company in connection with its two other business segments.
There can be no assurance that the Company will be able to develop or
maintain strategies and business operations that are necessary to increase
the revenues of the Company's Internet business. The Company's ability to
manage and expand its Internet business will require the Company to continue
to improve its operational, management and financial systems and controls and
to train, motivate and manage its employees in an industry in which it has
very limited operating history. Consequently, such expansion could place a
significant strain on the Company's services and support operations, sales
and administrative personnel and other resources. As a result, the Company
is subject to certain expansion-related risks, including the risk that it
will be unable to retain the necessary personnel or acquire the experience
and other resources necessary to service such expansion adequately.
RISKS ASSOCIATED WITH ACQUISITIONS
As part of the Company's strategy to enhance and maintain its competitive
position, the Company has previously consummated several acquisitions and
continues to evaluate potential acquisitions of businesses, products and
technologies. In considering an acquisition, the Company may compete with
other potential acquirors, many of whom may have greater financial and
operational resources. Further, the evaluation, negotiation, and integration
of such acquisitions may divert significant time and resources of the
Company, particularly of management. There can be no assurance that suitable
acquisition candidates will be identified, that any acquisitions can be
consummated or that any acquired businesses or products can be successfully
integrated into the Company's operations. In addition, there can be no
assurance that the previous acquisitions or any future acquisitions will not
have a material adverse effect upon the Company, particularly in the fiscal
quarters immediately following the consummation of such transactions due to
operational disruptions, unexpected expenses and accounting charges which may
be associated with the integration of such acquisitions.
PROPRIETARY TECHNOLOGY; RISK OF THIRD-PARTY CLAIMS OF INFRINGEMENT
To develop and maintain its competitive position, the Company relies
primarily upon the technical expertise and creative skills of its personnel,
confidentiality agreements and, to some degree, patents and copyrights. The
Company owns patents and has license rights to certain patents held by third
parties. These patents and patent rights relate to aspects of the technology
used in certain of the Company's products and services. Successful litigation
against the Company regarding its patents or patent rights, or infringement
by the Company of the patent rights of others, could have a material adverse
effect on the Company's business. There can be no assurance that patents
issued to or licensed by the Company will not be challenged or circumvented
by competitors or be found to be sufficiently broad to protect the Company's
technology or to provide it with any competitive advantage. Moreover, the
Company's business and results of operations may be materially adversely
affected by competitors who independently develop substantially equivalent
technology. In addition, there can be no assurance that confidentiality
agreements will not be breached or that the Company will have adequate
remedies for any such breach. The Company's competitive industries may be
affected by an increasing number of patents and frequent litigation based on
allegations of patent and other intellectual property infringement. To the
knowledge of the Company there are no such claims pending against or
involving the Company. There can be no assurance that third parties will not
assert infringement claims against the Company in the future, that assertions
by such parties will not result in costly litigation, or that the Company
would prevail in any such litigation or be able to license any valid and
infringed patents from third parties on commercially reasonable terms.
Further, such litigation, regardless of its outcome, could result in
substantial costs to and diversion of effort by the Company. Any infringement
claim or other litigation against or by the Company could have a material
adverse effect on the Company's business and results of operations. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as U.S. law.
PRODUCT LIABILITY
Some of the Company's products, such as those sold by the document
management division, are used to provide information that relates to the
customer's enterprise operations and information that may be used in other
critical applications. Any failure by the Company's products to provide
accurate and timely information could result in claims against the Company.
The Company maintains insurance to protect against claims associated with the
use of its products, but there can be no assurance that its insurance
coverage would adequately cover any claim asserted against the Company. A
successful claim brought against the Company in excess of its insurance
coverage could have a material adverse effect on the Company. Even
unsuccessful claims could result in the Company's expenditure of funds in
litigation and management time and resources. There can be no assurance that
the Company will not be subject to product liability claims, that such claims
will not result in liability in excess of its insurance coverage or that the
Company's insurance will cover such claims or that appropriate insurance will
continue to be available to the Company in the future at commercially
reasonable rates.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is dependent, in part, on its ability to
attract and retain qualified technical, marketing, sales and management
personnel. Competition for such personnel is intense and the Company's
inability to attract and retain additional key employees or the loss of one
or more of its current key employees could materially adversely affect the
Company's business and results of operations. There can be no assurance that
the Company will be successful in hiring or retaining key personnel.
RISKS DUE TO EXPANDING INTERNATIONAL OPERATIONS
Sales outside of the United States accounted for approximately 12% and
13% of the Company's total revenues for fiscal years 1997 and 1996,
respectively. Sales to foreign customers in the fiscal years 1997 and 1996
have been attributable primarily to the document management division. Further
development of foreign distribution channels by all of the Company's
divisions, covering potentially all of the Company's products and services,
could require a significant investment by the Company, which could adversely
affect short-term results of operations. The Company believes that its future
revenue growth and profitability in the foreign markets will principally
depend on its success in developing these new distribution channels. Failure
to increase revenues from the introduction of new products and services to
these markets, could have a material adverse effect on the Company's
business. Due to its export sales, the Company is subject to the risks of
conducting business internationally, including unexpected changes in
regulatory requirements, foreign currency fluctuations which could result in
reduced revenues or increased operating expenses, tariffs and trade barriers,
potentially longer payment cycles, difficulty in accounts receivable
collection, foreign taxes, and the burdens of complying with a variety of
foreign laws and trade standards. To date, the Company's contracts have all
been denominated in U.S. currency, and therefore the Company has not suffered
transaction losses due to foreign currency fluctuations. This may not be the
case in the future as the Company further develops its foreign distribution
channels. Similarly, the Company has not previously engaged in hedging with
respect to any foreign currency exposure but may do so in the future. The
Company also is subject to general geopolitical risks, such as political and
economic instability and changes in diplomatic and trade relationships, in
connection with its international operations. In addition, the laws of
certain foreign countries may not protect the Company's proprietary
technology to the same extent as do the laws of the U.S. There can be no
assurance that the risks associated with the Company's international
operations will not materially adversely affect the Company's business and
results of operations in the future or require the Company to modify
significantly its current business practices.
CONVERTIBLE SECURITIES; SHARES ELIGIBLE FOR FUTURE SALE; DILUTION
Sales of substantial amounts of the shares of Common Stock currently
issued, issuable upon conversion or the exercise of securities convertible
into or exercisable for Common Stock or of the shares of Common Stock offered
hereby could adversely affect the market value of the Common Stock, depending
upon the timing of such sales, and, in the case of convertible and
exercisable securities, may effect a dilution of the book value per share of
Common Stock.
As of December 31, 1997, 5,000 shares of the Company's Convertible
Preferred Stock were issued and outstanding. Each share of the Convertible
Preferred stock is convertible into such number of shares of Common Stock as
is determined by dividing the stated value ($1,000) of the shares of
Convertible Preferred Stock (as such value is increased by a premium of five
percent (5%) per annum based on the number of days the Convertible Preferred
Stock is held) by the then current conversion price (which is determined by
reference to the Certificate of Amendment designating the Convertible
Preferred Stock and the then current market price but is not more than $8.28
per share). If conversion is request on January 28, 1998, the Convertible
Preferred Stock would have been convertible into approximately 803,988 shares
of Common Stock. Depending on market conditions at the time of conversion,
the number of shares issuable could prove to be significantly greater in the
event of a decrease in the trading price of the Common Stock. Purchasers of
Common Stock could therefore experience substantial dilution upon conversion
of the Convertible Preferred Stock. The shares of Common Stock into which
the Convertible Preferred Stock may be converted are being registered
pursuant to this Registration Statement.
As of December 31, 1997, approximately 3,977,764 shares of Common Stock
were reserved for issuance upon exercise of outstanding warrants and options,
the conversion of the Company's Convertible Preferred Stock and pursuant to
the Company's employee and director stock option plans. At December 31,
1997, there were 6,970,546 shares of Common Stock outstanding, nearly all of
which were freely tradeable without restriction under the Securities Act
unless held by affiliates.
THE SELLING SHAREHOLDERS
The following table sets forth certain information regarding the Selling
Shareholders, including (i) the name of each Selling Shareholder, (ii) the
number of Shares beneficially owned by each Selling Shareholder as of
December 31, 1997, and (iii) the maximum number of Shares which may be
offered hereby. The information presented is based on data furnished to the
Company by the Selling Shareholders. Percentage ownership is based upon
6,970,546 shares of Common Stock outstanding on December 31, 1997.
The number of shares that may be actually sold by each Selling
Shareholder will be determined by such Selling Shareholder. Because each
Selling Shareholder may sell all, some or none of the shares of Common Stock
which each holds, and because the offering contemplated by this Prospectus is
not currently being underwritten, no estimate can be given as to the number
of shares of Common Stock that will be held by the Selling Shareholders upon
termination of the offering.
Pursuant to Rule 416 of the Securities Act, Selling Shareholders may
also offer and sell additional shares of Common Stock issued with respect to
warrants and the Convertible Preferred Stock as a result of stock splits,
stock dividends and anti-dilution provisions (including by reason of the
floating rate conversion price mechanism of the Convertible Preferred Stock
in accordance with the terms thereof).
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO SHARES BEING
OFFERING OFFERED
Number Percent
<S> <C> <C> <C>
RGC International Investors, LDC . . . . . . . . . . . . . 1,543,412(1) 18.1% 1,543,412(1)
John Jellinek . . . . . . . . . . . . . . . . . . . . . . . 378,102(2) 5.4% 251,500(3)
Joseph Rich . . . . . . . . . . . . . . . . . . . . . . . . 370,484(4) 5.3% 113,500(5)
Compania Di Investimento Italiani . . . . . . . . . . . . . 200,000(5) 2.8% 200,000
Forsythe/McArthur . . . . . . . . . . . . . . . . . . . . . 109,000(5) 1.6% 109,000
Robert G. Lamphere . . . . . . . . . . . . . . . . . . . . 143,507(6) 2.1% 45,500(5)
Charles R. Lamphere . . . . . . . . . . . . . . . . . . . . 121,004(6) 1.7% 45,500(5)
Alpine Capital Partners, Inc. . . . . . . . . . . . . . . . 50,000(7) * 50,000(5)
Miami University Foundation . . . . . . . . . . . . . . . . 50,000 * 50,000
John G. Hamm . . . . . . . . . . . . . . . . . . . . . . . 44,430(8) * 15,000
Christopher Moore . . . . . . . . . . . . . . . . . . . . . 2,225(5) * 2,225
Donald Asher . . . . . . . . . . . . . . . . . . . . . . . 37,200(9) * 26,000(5)
Alfred Ziegler . . . . . . . . . . . . . . . . . . . . . . 30,522 * 30,508
E. Forbes Gordon . . . . . . . . . . . . . . . . . . . . . 30,000 * 20,000
Willard Aaron . . . . . . . . . . . . . . . . . . . . . . . 21,800(5) * 21,800
BWJ Partnership . . . . . . . . . . . . . . . . . . . . . . 21,800(5) * 21,800
Jeannette Von Witzenburg . . . . . . . . . . . . . . . . . 20,000(10) * 20,000
CGRM Partnership . . . . . . . . . . . . . . . . . . . . . 13,080(5) * 13,080
Michael I. Cleary . . . . . . . . . . . . . . . . . . . . . 5,995(5) * 5,995
David Prokupek . . . . . . . . . . . . . . . . . . . . . . 5,995(5) * 5,995
Timothy P. Reiland . . . . . . . . . . . . . . . . . . . . 5,450(5) * 5,450
Christopher Barnes . . . . . . . . . . . . . . . . . . . . 2,180(5) * 2,180
Harlan P. Kleiman . . . . . . . . . . . . . . . . . . . . . 12,800(5) * 12,800
Michael Sweeney . . . . . . . . . . . . . . . . . . . . . . 8,400(5) * 8,400
Robert Rubin . . . . . . . . . . . . . . . . . . . . . . . 7,000(5) * 7,000
David Slater . . . . . . . . . . . . . . . . . . . . . . . 7,000(6) * 7,000
Frank H. Jellinek, Jr. . . . . . . . . . . . . . . . . . . 1,000(5) * 1,000
Russell Jeppesen . . . . . . . . . . . . . . . . . . . . . 1,000(5) * 1,000
Phillip Kenny . . . . . . . . . . . . . . . . . . . . . . . 178,102(11) * 51,500(5)
Irene F. Jellinek . . . . . . . . . . . . . . . . . . . . . 2,500(12) * 2,500
David Garbus . . . . . . . . . . . . . . . . . . . . . . . 1,000 * 1,000
Sean Kenlon . . . . . . . . . . . . . . . . . . . . . . . . 3,500(5) * 3,500
James L. Kropf . . . . . . . . . . . . . . . . . . . . . . 3,000(5) * 3,000
Steven Lamar . . . . . . . . . . . . . . . . . . . . . . . 2,400(5) * 2,400
D&K Stores . . . . . . . . . . . . . . . . . . . . . . . . 43,600(5) * 43,600
Brian Feuer . . . . . . . . . . . . . . . . . . . . . . . . 2,000(5) * 2,000
Mark Rabkin . . . . . . . . . . . . . . . . . . . . . . . . 1,875(5) * 1,875
Joshua Breen . . . . . . . . . . . . . . . . . . . . . . . 1,000(5) * 1,000
Thomas Griesel . . . . . . . . . . . . . . . . . . . . . . 800(5) * 800
* Less than 1%.
(1) Includes 150,000 shares of Common Stock issuable upon exercise of the RGC Warrants and 1,393,412 shares of Common Stock
issuable upon conversion of Convertible Preferred Stock. The actual number of shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock is indeterminate, and is subject to adjustment and could be materially less
or more than the 1,393,412 set forth above depending on factors which cannot be predicted by the Company at this time,
including, among other factors, the future market price of the Common Stock. The 1,393,412 shares of Common Stock
included in the Selling Shareholders table represents a good faith estimate of the number of shares of Common Stock that
are issuable upon conversion of the Convertible Preferred Stock (including shares issuable as a result of payment of
premiums in Common Stock or as a result of conversion default or other default payments). Pursuant to Rule 416 under the
Securities Act, the actual number of shares offered hereby, and included in the Registration Statement of which this
prospectus forms a part, includes, such additional number of shares of Common Stock as may be issued or issuable upon
conversion of the Convertible Preferred Stock by reason of the floating rate conversion price mechanism or other
adjustment mechanisms described therein, or by reason of any stock split, stock dividend or similar transaction involving
the Common Stock, in order to prevent dilution. Pursuant to the terms of the Certificate of Amendment designating the
Convertible Preferred Stock, the actual number of shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock will equal (i) the aggregate stated value of the shares of Convertible Preferred Stock then being
converted (i.e., $1,000 per share), plus a premium in the amount of 5% per annum accruing cumulatively from December 31,
1997, through the date of conversion (unless the Company chooses to pay such premium in cash or additional shares of
Convertible Preferred Stock), divided by (ii) a conversion price equal to the lower of $8.28 per share and the lowest
two-day average closing price of the Common Stock (as determined in accordance with the Certificate of Amendment
designating the Convertible Preferred Stock) during a specified 20-day trading period immediately prior to such
conversion (subject to adjustment in accordance with the Certificate of Amendment designating the Convertible Preferred
Stock). Except under certain limited circumstances, the Convertible Preferred Stock is not convertible to the extent
that the shares to be received upon such conversion or exercise would equal or exceed 20% of the outstanding Common
Stock. Therefore, the number of shares set forth herein and which a stockholder may sell pursuant to this Prospectus may
exceed the number of shares of Common Stock such stockholder would otherwise beneficially own as determined pursuant to
Section 13(d) of the Exchange Act. Pursuant to the terms of the Convertible Preferred Stock, the shares of Convertible
Preferred Stock are convertible by any holder only to the extent that the number of shares of Common Stock thereby
issuable, together with the number of shares of Common Stock owned by such holder and its affiliates (but not including
shares of Common Stock underlying unconverted shares of Convertible Preferred Stock) would not exceed 4.99% of the then
outstanding Common Stock as determined in accordance with Section 13(d) of the Exchange Act unless such stockholder
notifies the Company of its intent to convert an amount of Convertible Preferred Stock that causes such stockholder to
own more than 4.99% of the Common Stock at least sixty-one days prior to the date of such conversion. Accordingly, the
number of shares of Common Stock set forth in the table for this Selling Stockholder exceeds the number of shares of
Common Stock that this Selling Shareholder beneficially owns as of December 31, 1997. In that regard, beneficial
ownership of this Selling Shareholder set forth in the table is not determined in accordance with Rule 13d-3 under the
Exchange Act.
(2) Includes (i) 200,000 shares of Common Stock held by Jelco Ventures, Inc., (ii) 126,602 shares of Common Stock held by
Jelken LLC, and (iii) 51,500 shares of Common Stock issuable upon exercise of stock purchase warrants held by Jelken LLC.
Mr. Jellinek shares voting power with Phillip Kenny for all shares held by Jelken LLC.
(3) Includes 200,000 shares of Common Stock held by Jelco Ventures, Inc. and 51,500 shares of Common Stock issuable upon
exercise of stock purchase warrants held by Jelken LLC.
(4) Includes 113,500 shares issuable upon exercise of warrants.
(5) Consists of shares issuable upon exercise of stock purchase warrants.
(6) Includes shares issuable upon exercise of stock purchase warrants.
(7) Consists of shares issuable upon exercise of warrants held by Alpine Capital Partners, Inc. for which Evan Bines has full
voting and dispositive power.
(8) Includes 29,430 shares of Common Stock held jointly with his wife.
(9) Includes (i) 26,000 shares issuable upon exercise of stock purchase warrants that are held by DF Investments, for which
Mr. Asher has full voting and dispositive power, (ii) 5,600 shares held by Mr. Asher's wife, and (iii) 5,600 shares held
by Mr. Asher.
(10) Consists of shares issuable upon exercise of stock purchase warrants held in trust under which Ms. Van Witzenburg, as
trustee, has full dispositive and voting power.
(11) Consists of the shares described in note (2)(ii) and (iii) above.
(12) Consists of shares issuable upon exercise of stock purchase warrant held in trusts under which Ms. Jellinek, as trustee,
has full dispositive and voting power.
</TABLE>
RELATIONSHIPS WITH THE COMPANY
On December 31, 1997, Registrant issued to RGC International Investors, LDC
("RGC"), 5,000 shares of Convertible Preferred Stock and warrants to purchase
150,000 shares of Common Stock ("RGC Warrants") pursuant to a Securities
Purchase Agreement. The Convertible Preferred Stock is convertible at a price
based upon the market price for the Common Stock during the trading period
preceding conversion but not more than $8.28 per share. The RGC Warrants are
exercisable at $7.95 per share. Any Convertible Preferred Stock outstanding on
December 31, 2000 will be automatically converted into Common Stock and the RGC
Warrants expire on December 31, 2001. The RGC Warrants require adjustments of
the exercise price and the number of shares of Common Stock issuable if the
Company issues additional shares of Common Stock (other than pursuant to
presently outstanding warrants and other convertible securities, as well as
under Board approved employee/director option plans) at prices less than the
then market price. The Convertible Preferred Stock is subject to mandatory
redemption, at 118% of stated value per share ($1,000), and the Company is
subject to penalties, under a variety of circumstances, including failure to
list the underlying Common Stock on the American Stock Exchange and failure to
register the resale of the underlying Common Stock under the Securities Act. At
the Company's option, the Convertible Preferred Stock may be redeemed after
December 31, 1998 at the greater of Parity Value (as defined therein) or 130% of
its stated value. The Convertible Preferred Stock is entitled to dividends, at
the rate of 5% per annum, payable in cash or, at the Company's election, in
additional shares of Convertible Preferred Stock. Pursuant to the Securities
Purchase Agreement, the Company agreed to file, and has filed, with the
Commission, under the Act, a Registration Statement on Form S-3, of which this
Prospectus forms a part, with respect to the resale of the shares and agreed to
use its best efforts to keep such Registration Statement effective until such
date as all of the shares have been resold, or such time as all of the shares
held by RGC can be sold immediately without compliance with the registration
requirement of the Securities Act, pursuant to Rule 144 or otherwise. The sale
of the Preferred Stock and the RGC Warrants was arranged by Shoreline Pacific
Institutional Finance, the Institutional Division of Financial West Group
("Shoreline"), who received a fee of $250,000 plus warrants, exercisable at
$6.625 and expiring on December 31, 2000, to purchase 20,000 shares of Common
Stock. The warrants issued to Shoreline have been allocated among Messrs.
Kleiman, Kropf, Lamar and Griesel.
Mr. Hamm has been a director of the Company since 1985. At September 30,
1994, the Company was owed approximately $4.1 million plus accrued interest by
Ozite Corporation ("Ozite"). John G. Hamm held a substantial interest in
Ozite. Mr. Hamm was a director of Ozite from 1984 to 1994, Vice President-
Finance of Ozite from 1990 to 1994 and a director of Plastic Specialties &
Technologies, Inc. ("PST"), a majority-owned subsidiary of Ozite, from 1993
to January 1996. Due to uncertainties about collecting these funds, the
receivable from Ozite was written off and charged against earnings in 1991.
On July 26, 1995, Ozite shareholders approved a merger of Ozite with Pure
Tech International, Inc. ("Pure Tech") with Pure Tech being the surviving
corporation. As a condition of the merger, Ozite was required to secure a
general release from the Company and to surrender certain securities in
satisfaction of the amount owed to the Company. As a result, the Company
received 311,025 shares of Pure Tech common stock, 267,203 shares of ARTRA
Group Incorporated ("ARTRA") Common Stock, and approximately 932 shares of
ARTRA Preferred Stock. Subsequently, the Company sold all 311,025 shares of
Pure Tech for net proceeds of $1,027,466. During fiscal 1996, the remaining
securities consisting of ARTRA Common Stock and ARTRA Preferred Stock were
sold for net proceeds of $815,000, which were recorded as a capital
contribution.
In 1994, the Board voted to compensate Mr. Hamm $150,000 for previously
uncompensated services as a consultant rendered to the Company over the prior
ten years. During that period, Mr. Hamm coordinated the preparation of public
filings made by the Company, reviewed acquisition proposals and was involved in
investor relations. The Board authorized Mr. Hamm to receive (i) $100,000 in
cash, and (ii) either $50,000 in shares of Common Stock (10,000 shares) or 10
year warrants to purchase 16,667 shares of Common Stock at $5.00 per share, as
Mr. Hamm elects. In May 1996, the Company paid Mr. Hamm $77,000 and signed a
promissory note for $88,000 payable in equal monthly installments of $15,000
beginning June 1, 1996. The cash payment and the promissory note fulfilled the
Company's entire obligation to Mr. Hamm. At the Company's request, payments to
Mr. Hamm were suspended on September 1, 1996 due to cash flow constraints. At
September 30, 1996, the unpaid compensation was $44,500. Payments to Mr. Hamm
resumed in fiscal 1997, and the Company's entire obligation to Mr. Hamm, with
respect to his unpaid compensation, was satisfied as of January 1998. In
connection with these payments, Mr. Hamm exercised his stock purchase warrants
to purchase 15,000 shares of Common Stock.
Mr. Jellinek was the Chief Executive Officer of the Company from June 1993
to September 1996 and a director of the Company from June 1993 to December
1996. Mr. Kenny was a director of the Company from June 1993 to December
1996. In December 1997, Communicate Direct, Inc., a wholly-owned subsidiary
of the Company ("CDI"), sold its operations that support its Fujitsu
maintenance base in the Chicago metropolitan area to a new company formed by
Messrs. Jellinek and Kenny. The buyer acquired certain assets in exchange
for a $209,000 promissory note and the assumption of trade payables of at
least $624,000. In addition, at the closing the buyer paid off $438,000 of
existing Company bank debt and entered into a sub-lease of CDI's facility in
Buffalo Grove, Illinois. At the closing, the buyer merged with Telecom
Midwest, LLC. and Messrs. Jellinek and Kenny and two other shareholders of
the merged company personally guaranteed trade payables. The personal
guarantees of the promissory note are several. The personal guarantees of
the sub-lease are limited to $400,000 and are on a joint and several basis.
The personal guarantees of trade payables are on a joint and several basis
but are limited to Messrs. Jellinek and Kenny. Concurrent with this
transaction, Messrs. Jellinek and Kenny resigned from the Company's board.
The transaction was approved by the disinterested members of the Company's
board.
In June 1996, the Company acquired the exclusive worldwide manufacturing
rights to IMNET Systems, Inc.'s ("IMNET") MegaSAR Microfilm Jukebox and
completed and amended its obligations under a previous agreement. In addition
to becoming the exclusive manufacturer of the MegaSAR for IMNET, the Company
issued a $2.9 million note for prepaid license fees, software inventory, the
manufacturing rights, and certain other payables. Approximately $2.5 million
was paid on this note during the fourth quarter of fiscal 1996. The Company has
a receivable from IMNET of $176,000. The transaction was approved by the
disinterested members of the Company's board. Following the transaction,
Messrs. Jellinek and McDonough, a former director of the Company, resigned from
IMNET's board, and James Gordon, director of IMNET, resigned from the Company's
Board.
During the fourth quarter of fiscal 1996, the Company decided to integrate
the IMNET microfilm retrieval software with another software developer's
product, which the Company was already distributing. The integrated product
will require less IMNET software than previously assumed. As a result, the
Company recorded a one-time charge of $1.5 million to write-off software
inventory. Since the acquisition of the manufacturing rights from IMNET, the
transfer of all of the technical and manufacturing know-how has been delayed due
to technical difficulties. In July 1997, the Company and IMNET further amended
the June 1996 Agreement. In an attempt to facilitate the technology transfer,
the Company accepted an order from IMNET for the first 14 MegaSAR units to be
manufactured by the Company. A portion of the payment for these initial units
would be applied against the outstanding promissory note. The transfer of the
technology and the parts needed for production was to have occurred no later
than September 1, 1997. As of September 30, 1997, the transfer to the Company
of the technical and manufacturing know-how for this product offering has
continued to be delayed. Despite the ongoing negotiation and cooperation
between the two parties, the Company determined there was a potential material
risk in completing the technology transfer and getting the product to market.
As a result, in the fourth quarter of fiscal 1997, the Company recorded a one-
time charge to write-off the remaining $1.0 million in assets associated with
this transaction. The Company is currently negotiating with IMNET to either
complete the transfer or seek an alternative solution. During fiscal 1996, the
Company sold its entire holdings in IMNET for net proceeds of $7.7 million.
Accordingly, the Company recorded a gain on the sale of the securities of $5.7
million.
Mr. Ziegler was the Vice President and Secretary of the Company from 1978
to February 1996 and a director of the Company from 1977 to 1996.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the sale of the Shares
offered hereby. The Selling Shareholders have advised the Company that the
Shares may be sold by the Selling Shareholders or their respective pledgees,
donees, transferees or successors in interest, in one or more transactions
(which may involve one or more block transactions) on the American Stock
Exchange, in sales occurring in the public market of such Exchange, in privately
negotiated transactions, through the writing of options on shares, short sales
or in a combination of such transactions; that each sale may be made either at
market prices prevailing at the time of such sale or at negotiated prices; that
some or all of the Shares may be sold through brokers acting on behalf of the
Selling Shareholders or to dealers for resale by such dealers; and that in
connection with such sales such brokers and dealers may receive compensation in
the form of discounts and commissions from the Selling Shareholders and may
receive commissions from the purchasers of Shares for whom they act as broker or
agent (which discounts and commissions are not anticipated to exceed those
customary in the types of transactions involved). Any broker or dealer
participating in any such sale may be deemed to be an "underwriter" within the
meaning of the Securities Act and will be required to deliver a copy of this
Prospectus to any person who purchases any of the Shares from or through such
broker or dealer. The Company has been advised that, as of the date hereof,
none of the Selling Shareholders have made any arrangements with any broker for
the sale of their Shares.
In offering the Shares covered hereby, the Selling Shareholders and any
broker-dealers and any other participating broker-dealers who execute sales for
the Selling Shareholders may be deemed to be "underwriters" within the meaning
of the Securities Act in connection with such sales, and any profits realized by
the Selling Shareholders and the compensation of such broker-dealer may be
deemed to be underwriting discounts and commissions. In addition, any Shares
covered by this Prospectus which qualify for sale pursuant to Rule 144 may be
sold under Rule 144 rather than pursuant to this Prospectus.
In order to comply with certain states' securities laws, if applicable, the
Shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states, the Shares may not be sold unless the
Shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with. Under
applicable rules and regulations under Regulation M, any person engaged in the
distribution of the shares may not simultaneously engage in market making
activities, subject to certain exceptions, with respect to the Common Stock of
the Company for a period of five business days prior to the commencement of such
distribution and until its completion. In addition and without limiting the
foregoing, each Selling Shareholder will be subject to the applicable provisions
of the Securities Act and Exchange Act and the rules and regulations thereunder,
including, without limitation, Regulation M, which provisions may limit the
timing of purchases and sales of shares of the Company's Common Stock by the
Selling Shareholders.
The Company will bear all expenses of the offering of the Shares, except
that the Selling Shareholders will pay any applicable underwriting commissions
and expenses, brokerage fees and transfer taxes, as well as the fees and
disbursements of counsel to and experts for the Selling Shareholders.
Pursuant to the terms of registration rights agreements with certain of the
Selling Shareholders, the Company has agreed to indemnify and hold harmless such
Selling Shareholders from certain liabilities under the Securities Act.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report on Form 10-K for the year ended September 30, 1997 have
been audited by Coopers & Lybrand L.L.P., independent certified public
accountants, as set forth in their reports thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the expenses (estimated except for the SEC registration
fee) for the issuance and distribution of the securities being registered, all
of which will be paid by the Registrant.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee . . . . . . . . . $ 5,123
Fees and expenses of counsel . . . . . 20,000
Fees and expenses of accountants . . . 10,000
Listing fees . . . . . . . . . . . . . 17,500
Transfer agent fees . . . . . . . . . 5,000
Miscellaneous . . . . . . . . . . . . 17,377
Total . . . . . . . . . . . . . $75,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The New York Business Corporation Law and the By-laws of the Registrant
provide for indemnification of directors and officers for expenses (including
reasonable amounts paid in settlement) incurred in defending actions brought
against them.
The Company's Certificate of Incorporation provides that no contract or
other transaction between the corporation and any other corporation shall be
affected or invalidated by the fact that any one or more of the directors of the
Company is or are interested in or is a director or officer, or are directors or
officers, of such other corporation, and any director or directors, individually
or jointly, may be a party or parties to or may be interested in any contractor
transaction of the Company, or in which the Company is interested, and no
contract, act or transaction of the Company with any person or persons, firms or
corporations shall be affected or invalidated by the fact that any director or
directors of the Company is a party or are parties to, or interested in, such
contract, act or transaction, or in any way connected with such person or
persons, firms or corporations, and each and every person who may become a
director of the Company is hereby relieved from any liability that might
otherwise exist from contracting with the Company for the benefit of himself or
any firm or corporation in which he may be in anyway interested.
The Company's Bylaws provide that the Company may indemnify any person
made, or threatened to be made, a party to a civil or criminal action or
proceeding (other than one by or in the right of the Company to procure a
judgment in its favor), by reason of the fact that he was a director or officer
of the Company, or serves another entity in any capacity at the request of the
Company, against judgments, fines, settlement amounts and reasonable expenses,
including actual and necessary attorneys' fees, if such director or officer
acted, in good faith, for a purpose which he reasonably believed to be in, or,
in the case of service for any other entity, not opposed to, the best interest
of the Company, and, in criminal actions or proceedings, had no reasonable cause
to believe that his conduct was unlawful ("Good Faith"). The termination of any
such action or proceeding by judgment, settlement, conviction or upon a plea of
nolo contendere, or its equivalent, shall not in itself create a presumption
that any such director or officer did not act in Good Faith.
Under the Company's Bylaws, a person who has been successful, on the merits
or otherwise, in the defense of an action or proceeding described above shall be
entitled to indemnification. Except as provided in immediately preceding
sentence, any indemnification under the above paragraph or otherwise permitted
by Section 721 of the New York Business Corporation Law, unless ordered by a
court of competent jurisdiction, shall be made by the Company, only if
authorized in the specific case: (i) by the Board of Directors acting by a
quorum consisting of disinterested directors, or (ii) if a quorum is not
obtainable or a quorum of disinterested directors so directs, by the Board, upon
the opinion of independent legal counsel that indemnification is proper in the
circumstances, or by the shareholders.
Under the Company's Bylaws, the Company may indemnify any person made,
threatened or threatened to be made, a party to an action by or in the right of
the Company to procure a judgment in its favor by reason of this fact that he is
or was a director or officer of the Company, or is or was serving at the request
of the Company as a director or officer of any other entity against amounts paid
in settlement and reasonable expenses, including actual and necessary attorneys'
fees, if such director or officer acted, in good faith, for a purpose which he
reasonably believed to be in, or, in the case of service for any other entity,
not opposed to, the best interest of the Company, except, that no
indemnification under this paragraph shall be made in respect of (i) a
threatened action, or a pending action if settled or otherwise disposed of, or
(ii) any claim, issue or matter as to which such person shall have been adjudged
to be liable to the Company, unless the court in which the action was brought,
or, if no action was brought, any court of competent jurisdiction, determines
that the person is fairly and reasonably entitled to indemnity for such portion
of the settlement amount and expenses as the court deems proper.
Under the Company's Bylaws, the Company shall have the power to purchase
and maintain insurance to satisfy its indemnification obligations hereunder, or
to indemnify directors and officers in instances in which they may not otherwise
be indemnified by the Company under certain circumstances. No insurance may
provide for any payment, other than the cost of defense, to or on behalf of any
director or officer: (i) if it is established that his acts were committed in
bad faith or with deliberate dishonesty, were material to the cause of the
adjudicated action, or that he personally and illegally gained a financial
profit or other advantage, or (ii) in relation to any risk, the insurance of
which is prohibited under New York state insurance law.
Under the Company's Bylaws, the indemnification and advancement of expenses
shall not be deemed the exclusive right of any other rights to which a director
or officer may be entitled, provided that no indemnification may be made to or
on behalf of any director or officer if a judgment or other final adjudication
adverse to the director or officer establishes that his acts were committed in
bad faith or were the result of deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally and illegally gained a
financial profit or other advantage. No indemnification, advancement or
allowance shall be made in any circumstances if (i) the indemnification would be
inconsistent with a provision of the Company's Certificate of Incorporation, By-
laws, Board or shareholders resolutions, an agreement or other proper corporate
action, that is in effect at the time of the accrual of the alleged cause of
action, which prohibits or limits indemnification, or (ii) the court states that
indemnification would be inconsistent with any condition with respect to
indemnification expressly imposed by the court in a court-approved settlement.
If any amounts are paid by indemnification, otherwise than by court order or
action by the shareholders, the Company shall mail to its voting shareholders, a
statement describing the terms of the indemnification and any corporate action
taken with respect to the indemnification.
The Registrant maintains directors and officers liability insurance
covering all directors and officers of the Registrant against claims arising out
of the performance of their duties.
ITEM 16. EXHIBITS.
Exhibit
Number Description of Exhibit
4.1 Certificate of Incorporation, as amended.
4.2 By-Laws, as amended (incorporated herein by reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended
September 30, 1993).
5 Opinion of McDermott, Will & Emery.
23.1 Consent of McDermott, Will & Emery (included as part of Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney (included on signature page of the Registration
Statement).
ITEM 17. UNDERTAKINGS.
1. (a) The undersigned Registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in any information in the
Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that the undertakings set forth in paragraph (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to section 13 or section 15(d) of the Exchange
Act that are incorporated by reference in this Registration Statement.
(b) The undersigned Registrant hereby undertakes that, for determining any
liability under the Securities Act, each post-effective amendment 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.
(c) The undersigned Registrant hereby undertakes to file a post-effective
amendment to remove from registration any of the securities that remain unsold
at the termination of the offering.
(d) The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
2. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
undersigned Registrant pursuant to the foregoing provisions, or otherwise, the
undersigned Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the undersigned Registrant of expenses incurred or paid by a
director, officer or controlling person of the undersigned Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the undersigned Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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 on Form S-3, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Mountain View, California on January 29, 1998
SOFTNET SYSTEMS, INC.
By: /s/ A.J.R. Oosthuizen
A.J.R. Oosthuizen,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J.R. Oosthuizen and Ian B. Aaron and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as a director and/or officer of
SoftNet Systems, Inc.) to sign any or all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on January 29, 1998.
Signature Title
/s/ A.J.R. Oosthuizen President; Chief Executive
A.J.R. Oosthuizen Officer
(Principal Executive Officer)
/s/ Mark Phillips Treasurer
Mark Phillips (Principal Financial and
Accounting Officer)
/s/ Ronald Simon Director
Ronald Simon
/s/ Ian B. Aaron Director
Ian B. Aaron
/s/ John G. Hamm Director
John G. Hamm
Exhibit 4.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SOFTNET SYSTEMS, INC.
Under Section 805 of the Business Corporation Law
of the State of New York
THE UNDERSIGNED, Johann Oosthuizen and Mark Phillips, being the President
and Secretary of Softnet Systems, Inc. (the "Corporation") hereby certify that:
Article 1. The name of the Corporation is Softnet Systems, Inc. (the
"Corporation"), originally known as Tensor Electric Development Co., Inc.
Article 2. The Certificate of Incorporation was filed by the Department of
State on the 12th day of December, 1956.
Article 3. The Certificate of Incorporation is amended to establish the
designations, powers, preferences and rights of the Series A Convertible
Preferred Stock. To effect the foregoing, Article Third of the Certificate of
Incorporation is hereby amended by adding the following provisions to the end of
Article Third:
I. Designation and Amount
The designation of this series, which consists of 5,000 shares of Preferred
Stock, is Series A Convertible Preferred Stock (the "Series A Preferred Stock")
and the stated value shall be One Thousand Dollars ($1,000) per share (the
"Stated Value").
II. Rank
The Series A Preferred Stock shall rank (i) prior to the Corporation's
common stock, par value $.01 per share (the "Common Stock"); (ii) prior to any
class or series of capital stock of the Corporation hereafter created (unless,
with the consent of the holders of Series A Preferred Stock obtained in
accordance with Article IX hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Series A
Preferred Stock) (collectively, with the Common Stock, "Junior Securities");
(iii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the Series A Preferred Stock ("Pari Passu Securities");
and (iv) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, senior to the Series A Preferred Stock ("Senior Securities"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
III. Dividends
The Series A Preferred Stock shall bear dividends which will accrue
cumulatively at a rate of 5% per annum and shall be payable quarterly, at the
Corporation's option, in cash or in additional shares of Series A Preferred
Stock and may be entitled to additional distributions, pursuant to the terms of
Article VI(C)(4) and (5) hereof. In no event, so long as any Series A Preferred
Stock shall remain outstanding, shall any dividend whatsoever be declared or
paid upon, nor shall any distribution be made upon, any Junior Securities, nor
shall any shares of Junior Securities be purchased or redeemed by the
Corporation nor shall any moneys be paid to or made available for a sinking fund
for the purchase or redemption of any Junior Securities, without, in each such
case, the written consent of the holders of a majority of the outstanding shares
of Series A Preferred Stock, voting together as a class.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series A Preferred Stock, shall have received the Liquidation
Preference (as defined in Article IV.C) with respect to each share. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series A Preferred Stock and holders of
Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the Series A
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate liquidation preference payable on all
such shares.
B. At the option of any holder of Series A Preferred Stock, the
sale, conveyance or disposition of all or substantially all of the assets of the
Corporation in a single transaction or series of related transactions, the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other Person (as defined below) or Persons when the
Corporation is not the survivor shall either: (i) be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to which the Corporation
shall be required to distribute an amount equal to 118% of the Liquidation
Preference with respect to each outstanding share of Series A Preferred Stock
owned by such holder in accordance with and subject to the terms of this Article
IV or (ii) be treated pursuant to Article VI.C(3) hereof. "Person" shall mean
any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
C. For purposes hereof, the "Liquidation Preference" with respect to
a share of the Series A Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) an amount equal to five percent (5%) per
annum of such Stated Value for the period beginning on the date of issuance of
such share and ending on the date of final distribution to the holder thereof
(pro rated for any portion of such period) minus any dividends that have accrued
and been paid in cash or in stock in respect of such share of Series A Preferred
Stock. The liquidation preference with respect to any Pari Passu Securities
shall be as set forth in the Certificate of Amendment of the Certificate of
Incorporation filed in respect thereof.
V. Redemption
A. If any of the following events (each, a "Mandatory Redemption
Event") shall occur:
(i) The Corporation fails to issue shares of Common Stock to any
holder of Series A Preferred Stock upon exercise by such holder of its
conversion rights in accordance with the terms of this Certificate of
AmendmentIncorporation (for a period of at least sixty (60) days if such failure
is solely as a result of the circumstances governed by the second paragraph of
Article VI.F below and the Corporation is using all commercially reasonable
efforts to authorize a sufficient number of shares of Common Stock as soon as
practicable), fails to transfer or to cause its transfer agent to transfer any
certificate for shares of Common Stock issued to a holder upon conversion of
the Series A Preferred Stock as and when required by this Certificate of
Incorporation or the Registration Rights Agreement, dated as of December 31,
1997, by and between the Corporation and any other signatory thereto (the
"Registration Rights Agreement"), fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series A
Preferred Stock upon conversion of the Series A Preferred Stock as and when
required by this Certificate of AmendmentIncorporation, the Securities Purchase
Agreement dated as of December 31, 1997, by and between the Corporation and any
other signatory thereto (the "Purchase Agreement") or the Registration Rights
Agreement, or fails to fulfill its obligations pursuant to Section 4 of the
Purchase Agreement (or makes any statement that it does not intend to honor the
obligations described in this paragraph) and any such failure set forth above in
this paragraph shall continue uncured (or any statement not to honor its
obligations shall not be rescinded) for ten (10) business days;
(ii) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC") of the Registration Statement (as
defined in the Registration Rights Agreement) prior to June 30, 1998 or such
Registration Statement lapses in effect (or sales otherwise cannot be made
thereunder, whether by reason of the Company's failure to amend or supplement
the prospectus included therein in accordance with the Registration Rights
Agreement or otherwise) (a "Sale Restriction Day") for more than
forty-fivethirty (3045) consecutive days or seventy-five sixty (7560) days in
any twelve (12) month period after such Registration Statement becomes
effective;
(iii) The Corporation shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for all or substantially all of its property or business;
or such a receiver or trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation; or
(v) The Common Stock is suspended from trading on any of, or is
not listed for trading on at least one of the American Stock Exchange ("AMEX"),
the New York Stock Exchange or the Nasdaq National Market for an aggregate of at
least ten (10) days in any twelve (12) month period,
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v) at the option of
one or more holders of then outstanding shares of Series A Preferred Stock by
written notice (the "Mandatory Redemption Notice") to the Corporation of such
Mandatory Redemption Event, or upon the occurrence of any Mandatory Redemption
Event specified in subparagraphs (iii) or (iv), the Corporation shall purchase
such holder's or all holders' shares of Series A Preferred Stock for an amount
per share equal to the greater of (1) 118% multiplied by the sum of (a) the
Stated Value of the shares to be redeemed, plus (b) an amount equal to five
percent (5%) per annum of such Stated Value as reduced by any cash or stock
dividends paid through the date of payment of the Mandatory Redemption Amount
for the period beginning on the date of issuance of such shares and ending on
the date of payment of the Mandatory Redemption Amount (as defined below) (the
"Mandatory Redemption Date") and (2) the "parity value" of the shares to be
redeemed, where parity value means the product of (a) the number of shares of
Common Stock issuable upon conversion of such shares in accordance with Article
VI below (treating the Trading Day (as defined in Article VI.B below)
immediately preceding the Mandatory Redemption Date as the "Conversion Date" (as
hereinafter defined) unless the Mandatory Redemption Event arises as a result of
a breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date, and deeming the two consecutive Trading Days
in the Pricing Period (as hereinafter defined) preceding the Mandatory
Redemption Date that maximize the number of shares of Common Stock issuable for
purposes of this proviso as the Market Price Days (as hereinafter defined),
multiplied by (b) the Closing Price (as hereinafter defined) for the Common
Stock on such Conversion Date (the greater of such amounts being referred to as
the "Mandatory Redemption Amount"). Notwithstanding the foregoing, any holder
of Series A Preferred who does not sign the Mandatory Redemption Notice shall
retain such holder's shares of Series A Preferred Stock, the rights of which
shall continue to be governed by the terms of this Certificate of
Incorporation. The Corporation shall notify all holders promptly of the
receipt by the Corporation of a Mandatory Redemption Notice from any holder.
In the case of a Mandatory Redemption Event, if the Corporation fails
to pay the Mandatory Redemption Amount for each share within five (5) business
days of written notice that such amount is due and payable, then (assuming there
are sufficient authorized shares) in addition to all other available remedies,
each holder of Series A Preferred Stock shall have the right at any time, so
long as the Mandatory Redemption Event continues, to require the Corporation,
upon written notice, to immediately issue (in accordance with and subject to the
terms of Article VI below), in lieu of the Mandatory Redemption Amount, with
respect to each outstanding share of Series A Preferred Stock held by such
holder, the number of shares of Common Stock of the Corporation equal to the
Mandatory Redemption Amount divided by the Conversion Price then in effect.
B. If the Series A Preferred Stock ceases to be convertible as a
result of the limitations described in the second paragraph of Article VI.A
below (a "19.99% Event"), and the Corporation (i) has not obtained approval of
the issuance of the Conversion Shares by the requisite vote of the holders of
the then-outstanding Common Stock, (ii)has not prior to, or within thirty (30)
days after, the date that such 19.99% Event arises received other permission
pursuant to the rules of AMEX allowing the Corporation to resume issuances of
Conversion Shares, or (iii) is no longer governed by a rule promulgated by a
stock exchange, Nasdaq or other applicable body prohibiting the issuance of
Common Stock upon conversion of the Series A Preferred Stock in excess of 19.99%
of the Outstanding Common Amount. then, with respect to any Conversion Shares
issuable after the occurrence of the 19.99% Event, the Corporation shall pay
cash to the holder submitting the Notice of Conversion that includes such
Conversion Shares, in an amount equal to the product of (a) the number of
Conversion Shares issuable in accordance with such Notice of Conversion, but
which cannot be issued as a result of the 19.99% Event, multiplied by (b) the
Closing Price for the Common Stock on the Conversion Date. Upon the occurrence
of a 19.99% Event, a Notice shall be delivered promptly to the holders of Series
A Preferred Stock at their registered address appearing on the records of the
Corporation and shall state that 19.99% of the Outstanding Common Amount (as
defined in Article VI.A below) has been issued upon exercise of the Series A
Preferred Stock. All cash payments arising out of a 19.99% Event shall be paid
within three (3) business days of the Conversion Date.
C. Redemption at the Option of the Corporation
(i) The Corporation shall have the right to redeem the Series A
Preferred Stock on the following terms and conditions on any day after the first
anniversary of the date of original issuance of the Series A Preferred Stock.
(ii) In the case of a redemption under this Article V.C, the
redemption price per share of Series A Preferred Stock shall be the greater of
(i) 130% of the Stated Value, or (ii) the "parity value" of the shares to be
redeemed, where parity value means the product of (a) the number of shares of
Common Stock issuable upon conversion of such shares in accordance with Article
VI below (treating the Trading Day (as defined in Article VI.B below)
immediately preceding the Optional Redemption Date (as defined below) as the
"Conversion Date" (as hereinafter defined) and deeming the two consecutive
Trading Days in the Pricing Period (as hereinafter defined) preceding the
Optional Redemption Date that maximize the number of shares of Common Stock
issuable for purposes of this proviso as the Market Price Days (as hereinafter
defined)), multiplied by (b) the Closing Price (as hereinafter defined) for the
Common Stock on such Conversion Date (the greater of such amounts being referred
to as the "Optional Redemption Amount").
(iii) The Corporation shall effect each such redemption by
giving notice (the "Optional Redemption Notice") of its election to redeem, by
facsimile with a copy by overnight or 2-day courier, no less than 10 business
days prior to the redemption date (the "Optional Redemption Date"). The
Corporation may elect to redeem some, but not all, of the Series A Preferred
Stock, but in no event less than $1,500,000 per redemption. If the Corporation
elects to redeem some, but not all, of the Series A Preferred Stock, the
Corporation shall redeem a pro-rata amount from among all the Series A Preferred
Stock holders. The Optional Redemption Notice shall indicate whether the
Corporation will redeem all or part of the Series A Preferred Stock and the
Optional Redemption Date. The holders of the Series A Preferred Stock shall
have the right to convert their Series A Preferred Stock until 12:00 midnight,
New York time, on the Trading Day preceding the Optional Redemption Date.
(iv) The Corporation shall not be entitled to send an Optional
Redemption Notice unless it has (x) the full amount of the redemption price
(assuming that the Optional Redemption Amount equals 130% of the Stated Value
for all of the shares of Series A Preferred Stock to be redeemed), in cash,
available in a demand or other immediately available account in a bank or
similar financial institution or (y) immediately available credit facilities, in
the full amount of the redemption price (as calculated above), with a bank or
similar financial institution on the date the Optional Redemption Notice is
sent. If the Corporation has met the requirements of the preceding sentence,
and a holder has not submitted his Series A Preferred Stock for redemption as
required by this Article V.C by the Optional Redemption Date, the Corporation
may pay the Optional Redemption Price and cancel the Series A Preferred Stock
subject to the Optional Redemption Notice, and such redeemed Series A Preferred
Stock shall be of no further validity, force or effect. The Optional Redemption
Price shall be paid within three (3) business days after the Optional Redemption
Date.
VI. Conversion at the Option of the Holder
A. Each holder of shares of Series A Preferred Stock may, at its
option in accordance with the terms hereof, upon surrender of the certificates
therefor, convert any or all of its shares of Series A Preferred Stock into
Common Stock as follows (an "Optional Conversion") on or after the first to
occur of (a) the listing on AMEX (or on such other national securities exchange
or automated quotation system upon which the Common Stock is listed) of the
Common Stock into which the Series A Preferred Stock is then convertible or (b)
10 business days after the issuance of such Series A Preferred Stock. Each
share of Series A Preferred Stock shall be convertible into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing (1)
the sum of (a) the Stated Value thereof, plus, (b) the Premium Amount (as
defined below), by (2) the then effective Conversion Price (as defined below);
provided, however, that, unless the holder delivers a waiver in accordance with
the immediately following sentence, in no event shall a holder of shares of
Series A Preferred Stock be entitled to convert any such shares in excess of
that number of shares upon conversion of which the sum of (x) the number of
shares of Common Stock beneficially owned by the holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the shares of Series A
Preferred Stock or unexercised portion of warrants or any other securities
containing analogous limitations) and (y) the number of shares of Common Stock
issuable upon the conversion of the shares of Series A Preferred Stock with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by a holder and such holder's affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, (i) beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(x) of such proviso, and (ii) a holder may waive the limitations set forth
therein by written notice to the Corporation upon not less than sixty-one (61)
days prior written notice (with such waiver taking effect only upon the
expiration of such sixty-one (61) day notice period)); or (iii) is no longer
governed by a rule promulgated by a stock exchange, Nasdaq or other applicable
body prohibiting the issuance of Common Stock upon conversion of the Series A
Preferred Stock in excess of 19.99% of the Outstanding Common Amount. The
"Premium Amount" for each share of Series A Preferred Stock means the product of
the Stated Value, multiplied by .05, multiplied by (N/365), minus any dividends
that have accrued and been paid in cash or in stock in respect of such share of
Series A Preferred Stock, where "N" equals the number of days elapsed from the
date of issuance of the Series A Preferred Stock to and including the Conversion
Date (as defined in Article VI.B. below).
Notwithstanding anything to the contrary contained herein, if, at any time,
the aggregate number of shares of Common Stock then issued upon conversion of
the Series A Preferred Stock equals 19.99% of the "Outstanding Common Amount"
(as hereinafter defined), the Series A Preferred Stock shall, from that time
forward, cease to be convertible into Common Stock in accordance with the terms
of this Article VI and Article VII below, unless the Corporation (i) has
obtained approval of the issuance of the Series A Preferred Stock by a majority
of the total votes eligible to be cast on such proposal, in person or by proxy,
by the holders of the then-outstanding Common Stock, or (ii) shall have
otherwise obtained permission to allow such issuances from AMEX; or (iii) is no
longer governed by a rule promulgated by a stock exchange, Nasdaq or other
applicable body prohibiting the issuance of Common Stock upon conversion of the
Series A Preferred Stock in excess of 19.99% of the Outstanding Common Amount
without shareholder approval. For purposes of this paragraph, "Outstanding
Common Amount" shall be determined in accordance with the rules of AMEX, as may
be in effect from time to time. The maximum number of shares of Common Stock
issuable as a result of the 19.99% limitation set forth herein is hereinafter
referred to as the "Maximum Share Amount." With respect to each holder of Series
A Preferred Stock, the Maximum Share Amount shall refer to such holder's pro
rata share thereof determined in accordance with Article X below. In the event
that the Corporation obtains stockholder approval, the approval of AMEX or
otherwise concludes that it is able to increase the number of shares to be
issued above the Maximum Share Amount (such increased number being the "New
Maximum Share Amount"), the references to Maximum Share Amount, above, shall be
deemed to be instead, references to the greater New Maximum Share Amount. In
the event that stockholder approval is not obtained, there are insufficient
reserved or authorized shares or a registration statement covering the
additional shares of Common Stock which constitute the New Maximum Share Amount
is not effective prior to the Maximum Share Amount being issued (if such
registration statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged; provided, however,
that the holder may grant an extension to obtain a sufficient reserved or
authorized amount of shares or of the period for obtaining effectiveness of such
registration statement. In the event that (a) the aggregate number of shares of
Common Stock issued pursuant to the outstanding Series A Preferred Stock
represents at least twenty percent (20%) of the Maximum Share Amount and (b) the
sum of (x) the aggregate number of shares of Common Stock issued upon conversion
of Series A Preferred Stock plus (y) the aggregate number of shares of Common
Stock that remains issuable upon conversion of Series A Preferred Stock,
together in each case with any shares of Common Stock that are integrated with
the Conversion Shares for purposes of the rules of AMEX, represents at least one
hundred percent (100%) of the Maximum Share Amount (the "Triggering Event"), the
Corporation will use its best efforts to seek and obtain Stockholder Approval
(or obtain such other relief as will allow conversions hereunder in excess of
the Maximum Share Amount) as soon as practicable following the Triggering Event
and before the Mandatory Redemption Date.
B. 1. Subject to subparagraph (b) and (c) and Article VI.C below, the
"Conversion Price" shall be the lesser of (i) the Market Price (as defined
herein) (the "Variable Conversion Price") and (ii) the Fixed Conversion Price.
"Market Price" shall mean the average of the closing bid prices of the Common
Stock on AMEX, or on the principal securities exchange or other market on which
the Common Stock is then being traded (in each case, as reported by Bloomberg),
for any two (2) consecutive Trading Days (as defined herein) (the "Market Price
Days") in the 20 Trading Day period (the "Pricing Period") ending one (1)
Trading Day prior to the date (the "Conversion Date") the Notice of Conversion
(as defined in Section VI.E) is sent by a holder to the Corporation via
facsimile. "Trading Day" shall mean any day on which the Common Stock is traded
for any period on AMEX, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded. The
converting holder shall designate the "Market Price Days" on the Conversion
Date, from the Trading Days comprising the Pricing Period and such selection
shall be indicated in the Notice of Conversion. The "Fixed Conversion Price"
shall equal $8.28.
2. Notwithstanding anything contained in subparagraph (1) of this
Paragraph B to the contrary, in the event the Corporation (i) makes a public
announcement that it intends to consolidate or merge with any other corporation
(other than a merger in which the Corporation is the surviving or continuing
corporation and its capital stock is unchanged and the stockholders of the
Corporation prior to the date of such consolidation or merger continue to own at
least 51% of the surviving or continuing corporation) or sell or transfer all or
substantially all of the assets of the Corporation or (ii) any person, group or
entity (including the Corporation) publicly announces a tender offer (as such
term is used in the Exchange Act) to purchase 50% or more of the Corporation's
Common Stock (the date of the announcement referred to in clause (i) or (ii) is
hereinafter referred to as the "Announcement Date"), then the Conversion Price
shall, effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to the lower of
(x) the Conversion Price which would have been applicable for an Optional
Conversion occurring on the Announcement Date and (y) the Conversion Price that
would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (1) of this Article VI.B. For purposes hereof, "Adjusted
Conversion Price Termination Date" shall mean, with respect to any proposed
transaction or tender offer for which a public announcement as contemplated by
this subparagraph (2) has been made, six (6) Trading Days after the date upon
which the Corporation (in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer which caused this
subparagraph (2) to become operative, or the date on which the proposed
transaction or tender offer has been consummated.
3. In the event that (i) the Corporation fails to obtain
effectiveness with the SEC of the Registration Statement prior to 90 days (or
120 days if the Company is advised by the SEC that it is not eligible to use
form S-3 and is thus required to use Form S-1) following the issuance of the
Series A Preferred Stock, or (ii) such Registration Statement lapses in effect,
or sales otherwise cannot be made thereunder, whether by reason of the
Corporation's failure or inability to amend or supplement the prospectus (the
"Prospectus") included therein in accordance with the Registration Rights
Agreement or otherwise, after such Registration Statement becomes effective,
then the Pricing Period shall be comprised of, (a) in the case of an event
described in clause (i), the twenty (20) Trading Days preceding the 90th day (or
the 120th day if the Company is advised by the SEC that it is not eligible to
use form S-3 and is thus required to use Form S-1) following the issuance of the
Series A Preferred Stock plus all Trading Days through and including the third
Trading Day following the date of effectiveness of the Registration Statement;
and (b) in the case of an event described in clause (ii), the twenty (20)
Trading Days preceding the date on which the holders are first notified or
otherwise first reasonably determine based on the information available that
sales may not be made under the Prospectus, plus all Trading Days through and
including the third Trading Day following the date on which the holders of
Series A Preferred Stock are notified or otherwise first reasonably determine
based on the information available that such sales may again be made under the
Prospectus.
C. The Conversion Price shall be subject to adjustment from time to time
as follows:
1. Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc. If at any time when the Series A Preferred Stock is issued and
outstanding, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification, below-Market Price
rights offering to all holders of Common Stock or other similar event, the Fixed
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the Fixed
Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the transfer agent and the conversion agent for the
Series A Preferred Stock (the "Transfer Agent") of such change on or before the
effective date thereof.
2. Adjustment to Variable Conversion Price. If at any time when
Series A Preferred Stock is issued and outstanding, the number of outstanding
shares of Common Stock is increased or decreased by a stock split, stock
dividend, combination, reclassification, below-Market Price rights offering to
all holders of Common Stock or other similar event, which event shall have taken
place during the reference period for determination of the Conversion Price for
any Optional Conversion or Automatic Conversion of the Series A Preferred Stock,
then the Variable Conversion Price shall be calculated giving appropriate effect
to the stock split, stock dividend, combination, reclassification or other
similar event for the entire Pricing Period immediately preceding the Conversion
Date. In such event, the Corporation shall notify the Transfer Agent of such
change on or before the effective date thereof.
3. Adjustment Due to Merger, Consolidation, Etc. Subject to Article
IV.B, if, at any time when Series A Preferred Stock is issued and outstanding
and prior to the conversion of all Series A Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the
Corporation shall be changed into the same or a different number of shares of
another class or classes of stock or securities of the Corporation or another
entity, or in case of any sale or conveyance of all or substantially all of the
assets of the Corporation other than in connection with a plan of complete
liquidation of the Corporation, then the holders of Series A Preferred Stock
shall thereafter have the right to receive upon conversion of the Series A
Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities or assets which the holders of
Series A Preferred Stock would have been entitled to receive in such transaction
had the Series A Preferred Stock been converted in full (without regard to any
limitations on conversion contained herein) immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the holders of Series A Preferred Stock
to the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock) shall thereafter
be applicable, as nearly as may be practicable in relation to any securities or
assets thereafter deliverable upon the conversion of Series A Preferred Stock.
The Corporation shall not effect any transaction described in this subsection
(3) unless (i) it first gives, to the extent practical, thirty (30) days' prior
written notice (but in any event at least fifteen (15) business days prior
written notice) of such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event or sale of assets
(during which time the holders of Series A Preferred Stock shall be entitled to
convert the Series A Preferred Stock) and (ii) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of this subsection (3). The above provisions shall similarly apply
to successive consolidations, mergers, sales, transfers or share exchanges.
4. Adjustment Due to Distribution. Subject to Article III, if the
Corporation shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
by way of return of capital or otherwise (including any dividend or distribution
to the Corporation's shareholders in cash or shares (or rights to acquire
shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"),
then the holders of Series A Preferred Stock shall be entitled, upon any
conversion of shares of Series A Preferred Stock after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the holder with respect to the
shares of Common Stock issuable upon such conversion had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
5. Purchase Rights. Subject to Article III, if at any time when any
Series A Preferred Stock is issued and outstanding, the Corporation issues any
convertible securities or rights to purchase stock, warrants, securities or
other property (the "Purchase Rights") pro rata to the record holders of any
class of Common Stock, then the holders of Series A Preferred Stock will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Series A Preferred Stock (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
6. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VI.C. the
Corporation, at its expense, shall make available to the holders the information
necessary to determine such adjustment or readjustment. The Corporation shall,
upon the written request at any time of any holder of Series A Preferred Stock,
furnish to such holder a certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series A Preferred Stock.
D. For purposes of Article VI.C(1) and (2) above, "Market Price," which
shall be measured as of the record date in respect of the rights offering means
(i) the average of the last reported sale prices for the shares of Common Stock
as reported by AMEX, as applicable, for the twenty (20) Trading Days immediately
preceding such date, or (ii) if AMEX is not the principal trading market for the
shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period, or (iii)
if market value cannot be calculated as of such date on any of the foregoing
bases, the Market Price shall be the fair market value as reasonably determined
in good faith by (a) the Board of Directors of the Corporation, or (b) at the
option of two-thirds (2/3) of the holders, of the outstanding Series A Preferred
Stock by an independent investment bank of nationally recognized standing in the
valuation of businesses similar to the business of the Corporation.
E. In order to convert Series A Preferred Stock into full shares of
Common Stock, a holder of Series A Preferred Stock shall: (i) submit a copy of
the fully executed notice of conversion in the form attached hereto as Exhibit A
("Notice of Conversion") to the Corporation by facsimile dispatched on the
Conversion Date (or by other means resulting in notice to the Corporation on the
Conversion Date) at the office of the Corporation or the Transfer Agent that the
holder elects to convert the same, which notice shall specify the number of
shares of Series A Preferred Stock to be converted, the applicable Conversion
Price, the Market Price Days, and a calculation of the number of shares of
Common Stock issuable upon such conversion (together with a copy of the first
page of each certificate to be converted) prior to 12:00 Midnight, New York City
time (the "Conversion Notice Deadline") on the date of conversion specified on
the Notice of Conversion; and (ii) surrender the original certificates
representing the Series A Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed, along with a copy of the Notice of Conversion to
the office of the Corporation or the Transfer Agent as soon as practicable
thereafter. The Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion, until
eitheruntileither the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of subparagraph (1) below). In the
case of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not disputed
in accordance with subparagraph (2) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall
audit the calculations and notify the Corporation and the holder of the results
no later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
1. Lost or Stolen Certificates. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series A Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Corporation shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date.
2. Delivery of Common Stock Upon Conversion. Upon the surrender of
certificates as described above together with a Notice of Conversion, the
Corporation shall issue and, within three (3) business days after such surrender
(or, in the case of lost, stolen or destroyed certificates, after provision of
agreement and indemnification pursuant to subparagraph (1) above) (the "Delivery
Period"), deliver (or cause its Transfer Agent to so issue and deliver) to or
upon the order of the holder (i) that number of shares of Common Stock for the
portion of the shares of Series A Preferred Stock converted as shall be
determined in accordance herewith and (ii) a certificate representing the
balance of the shares of Series A Preferred Stock not converted, if any. In
addition to any other remedies available to the holder, including actual damages
and/or equitable relief, the Corporation shall pay to a holder $500 per day in
cash for each day beyond the three (3) day grace period following the Delivery
Period that the Corporation fails to deliver Common Stock issuable upon
surrender of shares of Series A Preferred Stock with a Notice of Conversion
until such time as the Corporation has delivered all such Common Stock. Such
cash amount shall be paid to such holder by the fifth day of the month following
the month in which it has accrued or, at the option of the holder (by written
notice to the Corporation by the first day of the month following the month in
which it has accrued), shall be payable in Common Stock in accordance with the
terms of this Article VI.
In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Transfer Agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, upon request of the holder and subject to the limitations contained in
Article VI.A. and to the holder's compliance with the provisions in this Article
VI.E., the Corporation shall use its best efforts to cause the Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
3. No Fractional Shares. If any conversion of Series A Preferred
Stock would result in a fractional share of Common Stock or the right to acquire
a fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon conversion, of the Series
A Preferred Stock shall be the next higher number of shares.
4. Conversion Date. The "Conversion Date" shall be the date
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in notice) to the
Corporation or the Transfer Agent before 12:00 Midnight, New York City time, on
the Conversion Date. Subject to Article VI.G, the person or persons entitled to
receive the shares of Common Stock issuable upon conversion shall be treated for
all purposes as the record holder or holders of such securities as of the
Conversion Date and all rights with respect to the shares of Series A Preferred
Stock surrendered shall forthwith terminate except the right to receive the
shares of Common Stock or other securities or property issuable on such
conversion and except that the holders preferential rights as a holder of Series
A Preferred Stock shall survive to the extent the corporation fails to deliver
such securities.
F. A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the Series A Preferred Stock
outstanding at the then current Conversion Price shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or exercise
(the "Reserved Amount"). The Reserved Amount shall be increased from time to
time in accordance with the Corporation's obligations pursuant to Section 4(h)
of the Purchase Agreement. In addition, if the Corporation shall issue any
securities or make any change in its capital structure which would change the
number of shares of Common Stock into which each share of the Series A Preferred
Stock shall be convertible at the then current Conversion Price, the Corporation
shall at the same time also make proper provision so that thereafter there shall
be a sufficient number of shares of Common Stock authorized and reserved, free
from preemptive rights, for conversion of the outstanding Series A Preferred
Stock.
If at any time a holder of shares of Series A Preferred Stock submits a
Notice of Conversion, and the Corporation does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion, in
accordance with the provisions of this Article VI (a "Conversion Default"), the
Corporation shall issue to the holder (or holders, if more than one holder
submits a Notice of Conversion in respect of the same Conversion Date), the
number of shares of Common Stock which are available to effect such conversion
up to such holder's pro rata share of the Reserved Amount, as determined in
accordance with Article X. The number of shares of Series A Preferred Stock
included in the Notice of Conversion which exceeds the amount which is then
convertible into available shares of Common Stock (the "Excess Amount") shall,
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the holder's
option at any time after) the date additional shares of Common Stock are
authorized by the Corporation to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date elected by the holder in respect thereof. The
Corporation shall use its best efforts to effect an increase in the authorized
number of shares of Common Stock as soon as possible following a Conversion
Default. In addition, the Corporation shall pay to the holder payments
("Conversion Default Payments") for a Conversion Default in the amount of (a)
(N/365), multiplied by (b) the sum of the Stated Value plus the Premium Amount
per share of Series A Preferred Stock through the Authorization Date (as defined
below), multiplied by (c) the Excess Amount on the day the holder submits a
Notice of Conversion giving rise to a Conversion Default (the "Conversion
Default Date"), multiplied by (d) .24, where (i) N = the number of days from the
Conversion Default Date to the date (the "Authorization Date") that the
Corporation authorizes a sufficient number of shares of Common Stock to effect
conversion of the full number of shares of Series A Preferred Stock. The
Corporation shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default Payment for
each calendar month shall be paid in cash or shall be convertible into Common
Stock at the Conversion Price, at the holder's option, as follows:
1. In the event the holder elects to receive such payment in cash,
cash payment shall be made to holder by the fifth day of the month following the
month in which it has accrued; and
2. In the event the holder elects to receive such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article VI (so long as there is then a sufficient number
of authorized shares).
Nothing herein shall limit the holder's right to pursue actual damages for
the Corporation's failure to maintain a sufficient number of authorized shares
of Common Stock, and each holder shall have the right to pursue all remedies
available at law or in equity (including a decree of specific performance and/or
injunctive relief).
G. Upon submission of a Notice of Conversion by a holder of Series A
Preferred Stock, (i) the shares covered thereby (other than the shares, if any,
which cannot be issued because their issuance would exceed such holder's
allocated portion of the Reserved Amount) shall be deemed converted into shares
of Common Stock and (ii) the holder's rights as a holder of such converted
shares of Series A Preferred Stock shall cease and terminate, excepting only the
right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
holder because of a failure by the Corporation to comply with the terms of this
Certificate of Incorporation. Notwithstanding the foregoing, if a holder has
not received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect to
a conversion of shares of Series A Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation) the holder shall regain the rights of a holder of
such shares of Series A Preferred Stock with respect to such unconverted shares
of Series A Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares of Series A Preferred Stock to the holder or, if
such shares of Series A Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Series A Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, the right to receive Conversion Default Payments
pursuant to Article VI.F. to the extent required thereby for such Conversion
Default and any subsequent Conversion Default).
VII. Automatic Conversion
So long as the Registration Statement is then effective or sales can
otherwise be made without volume restrictions under the Securities Act by the
holders of the Series A Preferred Stock and there is not then a continuing
Mandatory Redemption Event, each share of Series A Preferred Stock issued and
outstanding on December 31, 2000 (the "Automatic Conversion Date"),
automatically shall be converted into shares of Common Stock on such date at the
then effective Conversion Price in accordance with, and subject to, the
provisions of Article VI hereof (the "Automatic Conversion"); provided, however,
that the Automatic Conversion Date shall be extended by the number of Sale
Restriction Days which exceed a total of thirty (30) days. The Automatic
Conversion Date shall be the Conversion Date for purposes of determining the
Conversion Price and the time within which certificates representing the Common
Stock must be delivered to the holder.
VIII. Voting Rights
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Business Corporation Law of the
State of New York ("BCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder
of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the BCL the vote of the holders of the Series
A Preferred Stock, voting separately as a class or series, as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series A
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series A Preferred Stock
(except as otherwise may be required under the BCL) shall constitute the
approval of such action by the class. To the extent that under the BCL holders
of the Series A Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series A Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of shareholders as the date as of which the Conversion
Price is calculated. Holders of the Series A Preferred Stock shall be entitled
to notice of all shareholder meetings or written consents (and copies of proxy
materials and other information sent to shareholders) with respect to which they
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the BCL.
IX. Protective Provisions
So long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the BCL) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series A Preferred Stock or any Senior Securities so as to affect adversely the
Series A Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking pari
passu with the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "Pari Passu Securities");
(d) increase the authorized number of shares of Series A
Preferred Stock; or
(e) do any act or thing not authorized or contemplated by this
Certificate of Incorporation which would result in taxation of the holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series A Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series A Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series A Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Incorporation as they exist prior to such alteration or change or
continue to hold their shares of Series A Preferred Stock.
X. Pro Rata Allocations
The Maximum Share Amount and the Reserved Amount (including any
increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series A Preferred Stock based on the number of shares of Series A
Preferred Stock then held by each holder relative to the total aggregate number
of shares of Series A Preferred Stock then outstanding.
Article 4. This Certificate of Amendment was authorized and approved by the
Board of Directors of the Corporation at a meeting held on December 30, 1997 and
thereby duly adopted in accordance with the provisions of the Business
Corporation Law of the State of New York.
IN WITNESS WHEREOF, this certificate has been subscribed to this 30th day
of December, 1997 by the undersigned, who affirm that the statements made herein
are true under penalties of perjury.
/s/ A.J.R. Oosthuizen
A.J.R. Oosthuizen
President and C.E.O.
/s/ Mark A. Phillips
Mark A. Phillips
Treasurer and Secretary
[SEAL]
Attest: /s/ Nola A. Prevost
Name: Nola A. Prevost
Title: Executive Assistant
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series A Preferred Stock, represented by stock certificate No(s). __________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of Softnet Systems, Inc. (the "Corporation") according to the conditions
of the Certificate of Amendment of Series A Preferred Stock, as of the date
written below. If securities are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates. No fee will be
charged to the Holder for any conversion, except for transfer taxes, if any. A
copy of each Preferred Stock Certificate is attached hereto (or evidence of
loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Series A Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of
Common Stock to be Issued:_____________________
Signature:____________________________________
Name:_______________________________________
Address:______________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series A Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Amendment for the number of business
days such issuance and delivery is late.
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SOFTNET SYSTEMS, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
* * *
WE, THE UNDERSIGNED, John I. Jellinek and Alfred J. Ziegler, being
respectively the President and the Secretary of SoftNet Systems, Inc. hereby
certify:
FIRST. The name of the corporation is SoftNet Systems, Inc., originally
known as Tensor Electric Development Co., Inc.
SECOND. The certificate of incorporation of said corporation was filed by
the Department of State on the 12th day of December, 1956.
THIRD. Article THIRD of the Certificate of Incorporation is hereby amended
to increase the number of authorized common shares by 15,000,000 shares by
changing the first sentence of Article THIRD to read as follows:
"THIRD: The aggregate number of shares which the Corporation shall
have authority to issue is 29,000,000 shares, of which 25,000,000
shares shall be common stock, par value $.01 per share, and 4,000,000
shares shall be Preferred Stock, par value $.10 par share."
FOURTH. The amendment was authorized by the Board of Directors of the
Company followed by the vote of a majority of all of the outstanding shares
entitled to vote.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under penalties of perjury, this day of
June, 1996.
John I. Jellinek, President
Gary S. Mostow, Secretary
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
SOFTNET SYSTEMS, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
* * * * *
WE, THE UNDERSIGNED, John I. Jellinek and Eleanor Ault, being respectively
the President and the Assistant Secretary of SoftNet Systems, Inc. hereby
certify:
Article 1. The name of the corporation is SoftNet Systems, Inc.,
originally known as Tensor Electric Development Co., Inc.
Article 2. The certificate of incorporation of said corporation was filed
by the Department of State on the 12th day of December, 1956.
Article 3.
(a) The certificate of incorporation is amended to designate the
preferred stock terms and preferences.
(b) To effect the foregoing, Article Third relating to the said
corporation's stock is amended to add the following:
The relative rights, preferences, powers, qualifications, limitations and
restrictions granted to or imposed upon the Series A Preferred Stock or the
holders thereof, are as follows:
1. DEFINITIONS: For purposes of this Designation, the following
definitions shall apply:
"Board: shall mean the Board of Directors of the Company.
"Closing Price" per share of Common Stock on any date shall mean
(i) the last sale price on such day on the principal stock exchange on
which the Common Stock is then listed or admitted to trading, (ii) if
no sale takes place on such day on any such exchange, the average of
the last reported closing bid and asked prices on such day as
officially quoted on any such exchange, (iii) if the Common Stock is
not then listed or admitted to trading on any stock exchange, the
average of the last reported closing bid and asked prices on such day
in the over-the-counter market, as furnished by the National
Association of Securities Dealers Automatic Quotation System or the
National Quotation Bureau, Inc., (iv) if neither such corporation at
the time is in the business of reporting such prices as furnished by
any similar firm then engaged in such business, or (v) if there is no
such firm, as furnished by any member of the NASD selected mutually by
the holders of Preferred Stock and the Company or, if they cannot
agree upon such selection, be selected by two such members of the
NASD, one of which shall be selected by such holders and one of which
shall be selected by the Company or, if two such members cannot agree
on the Closing Price, the average of the Closing Prices furnished by
two such members.
"Common Stock" shall mean the common stock, par value $.01 per share,
of the Company.
"Company" shall mean Softnet Systems, Inc.
"Original Issue Date" shall mean the date of the original issuance of
shares of Preferred Stock.
"Preferred Stock" shall refer to shares of Series A Preferred Stock,
par value $.10 per share of the Company.
"Redemption Date" shall mean the date on which any shares of Preferred
Stock are redeemed by the Company.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to
trading is open for the transaction of business or, if the Common
Stock is not listed or admitted to trading on any national securities
exchange, any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
2. DESIGNATION; NUMBER OF SHARES. The designation of the Preferred
Stock authorized by this resolution shall be "Series A Preferred Stock" and
the number of shares of Preferred Stock authorized hereby shall be
1,500,000 shares.
3. DIVIDENDS. The holders of Preferred Stock shall be entitled to
receive dividends, when and as declared by the Board, at the same rate per
share as the holders of Common Stock.
4. LIQUIDATION RIGHTS OF PREFERRED STOCK.
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, each holder of Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Company available for distribution to its stockholders, whether such assets
are represented by capital, surplus or earnings, before any payment or
declaration and setting apart for payment of any amount shall be made in
respect of any shares of Common Stock or any share of any other class or
series of the Company's Preferred Stock ranking junior to the Preferred
Stock with respect to the payment of dividends or distribution of assets on
liquidation, dissolution or winding up of the Company, an amount equal to
$8.00 per share.
(b) If, upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the assets to be distributed
among the holders of Preferred Stock shall be insufficient to permit the
payment to such stockholders of the full preferential amounts aforesaid,
then the entire assets of the Company to be distributed shall be
distributed ratably among the holders of Preferred Stock, based on the full
preferential amounts for the number of shares of Preferred Stock held by
each holder.
(c) A consolidation or merger of the Company with or into any other
corporation or corporations in which the stockholders of the Company
receive solely capital stock of the acquiring corporation (or of the direct
or indirect parent corporation of the acquiring corporation), except for
cash in lieu of fractional shares, shall not be deemed to be a liquidation,
dissolution or winding up of the Company as those terms are used in this
paragraph 4.
5. REDEMPTION OF PREFERRED STOCK:
(a) The Company shall, at a redemption price equal to the greater of
(1) the number of shares of Preferred Stock outstanding multiplied by the
Closing Price per share of Common Stock on the Trading Day immediately
prior to the Redemption Date; and (2) $4,000,000 (the "Redemption Price"),
redeem from any source of funds legally available therefor, all shares of
Preferred Stock outstanding on the fifth anniversary of the Original Issue
Date.
(b) If, at the time of any redemption pursuant to (a) above, the
funds of the Company legally available for redemption of Preferred Stock
are insufficient to redeem the number of shares required to be redeemed,
those funds which are legally available shall be used to redeem the maximum
possible number of such shares, pro rata based upon the number of shares
requested to be redeemed by the holders thereof. At any time thereafter
when additional funds of the Company become legally available for the
redemption of Preferred Stock, such funds shall immediately be used to
redeem the Preferred Stock which the Company has become obligated to redeem
pursuant to this subparagraph, but which it has not redeemed, at the per
share value of the Redemption Price plus interest from the Redemption Date
at an annual rate equal to 6%.
6. VOTING RIGHTS:
(a) The holders of Preferred Stock, except as otherwise provided
hereunder or required under New York law, shall not be entitled to vote.
(b) So long as any shares of the Preferred Stock shall remain
outstanding, the Company will not, without the affirmative vote at a
meeting or the written consent with or without a meeting of the holders of
at least two-thirds of the outstanding shares of Preferred Stock, (1)
create any class or series of stock ranking prior to or on a parity with
the Preferred Stock either as to dividends or upon liquidation or (2)
amend, alter or repeal any of the provisions of the Company's Articles of
Incorporation or By-Laws so as to affect adversely the preferences, special
rights or powers of the Preferred Stock or (c) liquidate, wind up or
dissolve itself other than as a result of its insolvency or bankruptcy.
7. CONVERSION:
(a) From and after the date that the holders of the Common Stock of
the Company approve the conversion of Preferred Stock into Common Stock
("Shareholder Approval"), each share of Preferred Stock shall be
convertible into one fully paid and nonassessable share of Common Stock,
subject to adjustment as hereinafter set forth in subclause (d) below.
(b) Following the receipt of notice of Shareholder Approval, each
holder of shares of Preferred Stock shall surrender the certificate or
certificates representing the shares of preferred Stock to be converted,
duly endorsed for transfer to the Company, at the principal executive
office of the Company. Conversion shall be deemed to have been effected on
the date of Shareholder Approval (the "Conversion Date"). As promptly as
practicable thereafter, the Company shall issue to or upon the written
order of such holder, a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled. The conversion of
shares of Preferred Stock into shares of Common Stock shall be deemed to be
effective and such holder, or the person or persons designated by such
holder, shall be deemed to have become a holder of record of the shares of
Common Stock issuable upon conversion of such shares of Preferred Stock on
the applicable Conversion Date unless the transfer books of the company are
closed on such date, in which event such holder shall be deemed to have
become a holder of record of the shares of Common Stock issued upon
conversion of the shares of Preferred Stock on the next succeeding date on
which the transfer books of the Company are open.
(c) No fractional shares of Common Stock shall be issued upon
conversion of shares of Preferred Stock. In lieu of issuing fractional
shares of Common Stock upon conversion of shares of Preferred Stock, the
Company shall pay a cash adjustment in respect of such fractional shares of
Common Stock equal to the fair market value thereof as determined by the
Board of Directors of the Company.
(d) The number of shares of Common Stock into which a share of
Preferred Stock shall be convertible as set forth in subclause (a) above,
shall be subject to adjustment from time to time as follows:
(1) In case the Company shall at any time subdivide (e.g. split) its
outstanding shares of Common Stock or shall issue a dividend or other
distribution payable in shares of Common Stock, the number of shares
of Common Stock into which a share of Preferred Stock shall be
convertible shall be proportionately increased, effective immediately
after the effective date of such subdivision or at the close of
business on the record date fixed by the Board of Directors of the
Company for such dividend or other distribution, as the case may be;
(2) In case the Company shall at any time combine (e.g. reverse
split) its outstanding shares of Common Stock, the number of shares of
Common Stock into which a share of Preferred Stock shall be
convertible shall be proportionately decreased, effective immediately
after the effective date of such combination; and
(3) In case the Company shall at any time recapitalize or reclassify
its capital stock, or in case of any consolidation or merger of the
Company with or into any other person (other than a consolidation or
merger in which the Company is the continuing entity and which does
not result in any change in the capital stock of the Company) or in
case of the sale or other disposition of all or substantially all the
assets of the Company as an entirety to any other person, then in each
such case each outstanding share of Preferred Stock shall after such
recapitalization, reclassification, consolidation, merger, sale or
other disposition be convertible into the kind and number of shares of
capital stock or other securities or assets of the Company or of the
entity resulting from such consolidation or surviving such merger or
to which such assets shall have been sold or otherwise disposed of to
which the holder thereof would have been entitled if immediately prior
to such recapitalization, reclassification, consolidation, merger,
sale or other disposition such holder had converted its shares of
Preferred Stock. The provisions set forth above shall apply to
successive recapitalizations, reclassifications, consolidations,
mergers, sales or other dispositions.
(e) All shares of Common Stock issued upon conversion of shares of
Preferred Stock shall, upon issuance by the Company, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
8. NOTICES. All notices to the Company permitted hereunder shall be
personally delivered or sent by first class mail, postage prepaid,
addressed to its office located at One Overlook Point, Lincolnshire, IL
60069 or to such other address at which its principal office is located and
as to which notice thereof is similarly given to the holders of the
Preferred Stock at their addresses appearing on the books of the Company.
Article 4. The amendment was authorized by the Unanimous Written Consent
of the Board of Directors.
IN WITNESS WHEREOF, we have signed this certificate on the 28th day of
October, 1994 and we affirm the statements contained therein as true under
penalties of perjury.
/s/ John I. Jellinek
John I. Jellinek, President
/s/ Eleanor Ault
Eleanor Ault,
Assistant Secretary
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE VADER GROUP INC.
Under Section 805 of the Business Corporation Law
Pursuant to the provisions of Section 805 of the Business Corporation Law,
the undersigned Peter Harvey, President, and Alfred Ziegler, Secretary, hereby
certify:
FIRST: The name of the corporation is The Vader Group Inc., originally
known as Tensor Electric Development Co. Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State, Albany, New York on the 12th day of December, 1956.
THIRD: The amendments to the Certificate of Incorporation effected by this
Certificate are as follows:
Article FIRST of the Certificate of Incorporation is hereby amended to
change the name of the Corporation as follows:
"FIRST: The name of the Corporation is SoftNet Systems, Inc."
Article THIRD of the Certificate of Incorporation is hereby amended to
increase the number of authorized common shares and preferred shares and to
reduce the par value thereof by changing the first sentence of Article
THIRD to read as follows:
"THIRD: The aggregate number of shares which the Corporation
shall have authority to issue is 14,000,000 shares, of which
10,000,000 shares shall be common stock, par value $.01 per share
and 4,000,000 shares shall be Preferred Stock, par value $.10 par
share."
Article SEVENTH of the Certificate of Incorporation is hereby amended
to eliminate the nine-man classified Board of Directors by changing Article
SEVENTH (a) to read as follows and by deleting Article SEVENTH (b):
"SEVENTH: (a) The Board of Directors shall from to time determine
the number of directors constituting the entire Board of
Directors of the Corporation, provided, however, that in no event
shall the number of directors constituting the entire Board of
Directors be less than five directors."
FOURTH: That as a result of the amendment to Article THIRD, each of the
2,329,950 outstanding shares of Common Stock, par value $.10 per share, shall be
exchanged for an outstanding share of Common Stock, par value $.01 per share, on
a one-to-one ratio of exchange; each of the 3,670,050 unissued shares of Common
Stock, par value $.10 per share, shall be changed into unissued shares of Common
Stock, par value $.01 per share, on a 2.0899034 to one basis, the result being
7,670,050 unissued shares at par value .01 and each of the 2,000,000 unissued
shares of Preferred Stock, par value $1.00 per share, shall be changed into
unissued shares of Preferred Stock, par value $.10 per share on a two to one
basis; and $.09 per share of the stated capital per outstanding share of Common
Stock, or an aggregate of $209,695.50, shall be transferred from stated capital
to a capital surplus account.
FIFTH: That the foregoing amendments to the Certificate of Incorporation
were authorized by a vote of the Board of Directors followed by a vote of in
excess of two-thirds of all outstanding shares entitled to vote on amendments to
the Certificate of Incorporation at a meeting of shareholders.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under penalties of perjury, this 29th day of
June 1993.
/s/ Peter Harvey
PETER HARVEY, President
/s/ Alfred Ziegler
ALFRED ZIEGLER, Secretary
CERTIFICATE OF CHANGE
THE VADER GROUP INC.
(Under Section 805-A of the Business Corporation Law)
FIRST: The name of the corporation (the "corporation") THE VADER GROUP
INC.
The name under which this corporation was formed is
TENSOR ELECTRIC DEVELOPMENT CO. INC.
SECOND: The certificate of incorporation of the corporation was filed by
the Department of state on 12-12-56.
THIRD: The certificate of incorporation of the corporation is hereby
changed, so as to change the post office address to which the Secretary of State
of the State of New York shall mail copy of process against the corpration
served upon him and to change the address of the registered agent; and to
accomplish said changes, the statements in the certificate of incorporation
relating to said post office address and the designation of registered agent are
hereby stricken and the following statements are subsitituted in lieu thereof:
"The post office address within the State of New York to which the
Secretary of State of New York shall mail a copy of any process against the
corporation served upon him is c/o United States Corporation Company, 15
Columbus Circle, New York, New York 10023-7773.
"The name and the address of the registered agent of the corporation are
United States Corporation Company, 15 Columbus Circle, New York, New York
10023-7773. Said registered agent is to be the agent upon which process
against the corporation may be served."
FOURTH: A notice of the proposed changes was mailed by the undersigned to
the corporation not less than 30 days prior to the date of the delivery of this
certificate to the Department of State and the corporation has not objected
thereto. The person signing this certificate is the agent of the corporation to
whose address the Secretary of the State of New York is required to mail copies
of process and the registered agent of the corporation.
IN WITNESS WHEREOF, we have subscribed this document on the date
hereinafter set forth and do hereby affirm, under the penalties of perjury, that
the statements contained therein have been examined by us and are true and
correct.
Dated: 11/13/1990
UNITED STATES CORPORATION COMPANY
/s/ Alan E. Spiewak
Alan E. Spiewak, Vice President
/s/ Richard L. Kushay
Richard L. Kushay, Asst. Secretary
RESTATED
CERTIFICATE OF INCORPORATION
OF
TENSOR CORPORATION
Under Section 807 of the
Business Corporation Law
Pursuant to Section 807 of the Business Corporation Law, the undersigned
hereby certify:
FIRST: That the name of the corporation is TENSOR CORPORATION, formerly
known as TENSOR ELECTRIC DEVELOPMENT CO., INC.
SECOND: That the Certificate of Incorporation of the corporation was filed
by the Department of State, Albany, New York on the 12th day of December, 1956.
THIRD: That the changes in the Certificate of Incorporation effected by
this Certificate are as follows:
(a) To change the post office address to which the Secretary of State
shall mail a copy of any process against the corporation served upon
him, so that such address shall hereafter be United States Corporation
Company, 70 Pine Street, New York, New York 10270;
(b) To omit Articles Eighth and Ninth in accordance with Section 807(c).
Article Eighth states the names and post office addresses of the
directors until the first annual meeting of the stockholders and
Article Ninth states the names, shares and post office addresses of
each subscriber to the Certificate of Incorporation.
(c) To designate United States Corporation Company, 70 Pine Street, New
York, New York 10270 as the registered Agent of the Corporation upon
whom process against it may be served.
FOURTH: That the text of the Certificate of Incorporation of said TENSOR
CORPORATION, is hereby restated and changed to read in full as follows:
"FIRST: The name of the corporation is TENSOR CORPORATION.
SECOND: The purposes for which the proposed corporation is formed is
as follows:
(a) To do electronic and electrical work of every kind and
description, including the business of electricians, electrical
and electronic and mechanical manufacturers and dealers, either
as principals or agents. To manufacture, install, repair, buy,
sell, import, export, trade and deal in machinery and appliances
for the generation, transmission and utilization of electricity,
direct and alternating current machinery, gauges, motors,
generators, dynamos, transformers, storage and other batteries,
armatures, controllers, distributors, magnetos, switches and
switchboards, vibrators, elevators, engines, pumps, fans, lamps,
and flash lights, carbon brushes, fuses, insulators and
insulating materials, bells annunciators, burglar alarms,
electric cutting and welding machines and electrical tools,
machinery, devices, apparatus, appliances, equipment and
accessories of every description;
(b) To purchase, construct, own, maintain, improve, sell, lease,
mortgage, convey, and in all ways use and operate and make any
lawful contracts pertaining to factories, buildings, machinery,
equipment, works and facilities generally for the manufacturing,
selling, working, preparing, treating, handling and dealing in
electronic, electrical and mechanical products and in all kinds
of materials, goods, wares and merchandise;
(c) To acquire and take over as a going concern and to carry on the
business of any person, firm, association or corporation engaged
in any business which this corporation is authorized to carry on,
and in connection therewith to acquire the goodwill and all or
any part of the assets and to assume or otherwise provide for all
or any of the liabilities of the owner or owners of any such
business.
(d) To purchase or acquire real estate and leaseholds or any interest
therein in addition to such as may be necessary for the purposes
hereinbefore expressed and to own, hold, or improve, sell and
deal in the same;
(e) To purchase or otherwise acquire real and personal property of
any and all kinds that may be lawfully acquired, and held by a
business corporation, and in particular lands, leaseholds, shares
of stock, mortgages, bonds and other securities, merchandise,
book debts and claims, copyrights, trademarks, tradenames,
brands, labels, patents and patent rights, licenses and
concessions and any interest in real and personal property;
(f) To make, accept, endorse, execute and issue promissory notes,
bills of exchange, bonds and other obligations from time to time
for the purchase of property or for any purpose in or about the
business of the company, and to secure the payment of any such
obligations by mortgage, pledge, deed of trust or otherwise;
(g) The business or purpose of the company is from time to time to do
any one or more of the acts and things herein set forth and it
may conduct such business in all of its branches or any part
thereof outside of the State of New York and in any other states
and territories and the dependencies of the United States and in
foreign countries;
(h) To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes or the attainment of any of
the objects or the furtherance of any of the powers hereinbefore
set forth, either alone or associated with other corporations,
firms or individuals and to do any other act or acts, thing or
things, incidental or pertaining to, or growing out of, or
connected with the aforesaid business or powers, or any part or
parts thereof, provided the same be not inconsistent with the
laws under which this corporation is organized.
The foregoing clauses shall be construed both as objects and powers, and it
is hereby expressly provided that the foregoing enumeration of specific powers
shall not be held to limit or restrict in any manner the powers of this
corporation.
THIRD: The aggregate number of shares which the corporation shall
have authority to issue is 2,000,000 shares of the par value of $.10 each.
FOURTH: The capital of the corporation shall be at least equal to the
sum of the aggregate par value of all the issued shares having par value, plus
the aggregate amount of consideration received by the corporation for the
issuance of shares without par value, plus such amounts, as from time to time,
by resolution of the Board of Directors, may be transferred thereto.
FIFTH: The office of the corporation is to be located in County of
Kings, State of New York.
The Secretary of State is designated as the Agent of the
Corporation upon whom process against the Corporation may be served and the
address to which the Secretary of State shall mail a copy of any process against
the corporation which may be served upon it pursuant to law is c/o United States
Corporation Company, 70 Pine Street, New York, New York 10270.
SIXTH: The duration of the corporation shall be perpetual:
SEVENTH: (a) The number of directors of the
corporation shall be nine directors who shall be divided into
three classes of three directors each, designated as Class A,
Class B, and Class C.
(b) The term of office of the initial Class A directors
shall expire at the next annual meeting of shareholders. The
term of office of the initial Class B directors shall expire at
the second succeeding annual meeting and the term of office of
the initial Class C directors shall expire at the third
succeeding annual meeting. At each annual meeting after the
initial classification of directors, directors to replace those
whose terms expired at such annual meeting, shall be elected to
hold office until the third succeeding annual meeting.
(c) In all elections of directors, each shareholder shall
be entitled to as many votes as shall equal the number of shares
held by him, multiplied by the number of directors to be elected,
and he may cast all of such votes for a single director or may
distribute them among the number to be voted for, or any two or
more of them, as he may see fit, which right, when exercised,
shall be termed 'cumulative voting.'
(d) No director may be removed from office prior to the
expiration of this term except for cause by the vote of the
shareholders as required by Section 706 of the Business
Corporation Law.
EIGHTH: (omitted)
NINTH: (omitted)
TENTH: The United States Corporation Company, 70 Pine Street, New
York, New York 10270 is designated as the agent of the corporation upon whom
process in any action or proceeding against the corporation may be served.
ELEVENTH: No contract or other transaction between the corporation
and any other corporation shall be affected or invalidated by the fact that any
one or more of the directors of this corporation is or are interested in or is a
director or officer, or are directors or officers of such other corporation, and
any director or directors, individually or jointly, may be a party or parties to
or may be interested in any contractor transaction of this corporation, or in
which this corporation is interested, and no contract, act or transaction of
this corporation with any person or persons, firms or corporations shall be
affected or invalidated by the fact that any director or directors of this
corporation is a party or are parties to, or interested in, such contract, act
or transaction, or in any way connected with such person or persons, firms or
corporations, and each and every person who may become a director of this
corporation is hereby relieved from any liability that might otherwise exist
from contracting with the corporation for the benefit of himself or any firm or
corporation in which he may in anywise be interested.
TWELFTH: No stockholder of this Corporation shall, because of the
ownership of stock, have a pre-emptive or other right to purchase, subscribe
for, or take any part of any stock or any part of the notes, debentures, bonds,
or other securities convertible into or carrying options or warrants to purchase
stock of this Corporation issued, optioned, or sold by it. Any part of the
capital stock and any part of the notes, debentures, bonds, or other securities
convertible into or carrying options or warrants to purchase stock of this
Corporation, authorized by this amended certificate may at any time be issued,
optioned for sale, and sold or disposed of by this Corporation pursuant to
resolution of its board of directors to such persons and upon such terms as may
to such board seem proper without first offering such stock or securities or any
part thereof to existing stockholders.
The affirmative vote of holders of not less than two-thirds of the
outstanding shares of stock of the corporation shall be required in order to
amend, alter, change or repeal the provisions of Article SEVENTH hereof or this
Article TWELFTH."
FIFTH: That the changes in the Certificate of Incorporation and the
restatement were authorized by unanimous written consent of the Board of
Directors pursuant to Section 708 of the New York Business Corporation Law and
the By-laws of TENSOR CORPORATION.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under penalties of perjury this 21st day of
January, 1986.
TENSOR CORPORATION
By: /s/ Peter R. Harvey
Peter R. Harvey,
Chairman of the Board
/s/ Philip E. Ruben
Philip E. Ruben,
Assistant Secretary
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MAGICSILK, INC.
_______________________________________
Under Section 805 of the Business Corporation Law
_______________________________________
Pursuant to the provisions of Section 805 of the Business Corporation Law,
the undersigned Hobart Overocker, President and Alfred Ziegler, Secretary,
hereby certify:
FIRST: The name of the corporation is Magicsilk, Inc., originally known as
TENSOR ELECTRIC DEVELOPMENT CO. INC.
SECOND: That the Certificate of Incorporation of the corporation was filed
with the Department of State, Albany, New York on the 12th day of December,
1956.
THIRD: The amendment to the Certificate of Incorporation effected by this
Certificate are as follows:
Paragraph First of the Certificate of Incorporation
is hereby amended to change the name of the Corporation as
follows:
First: That the name of the corporation is:
The Vader Group Inc.
FOURTH: That the amendment to the Certificate of Incorporation was
authorized by a vote of the Board of Directors followed by a vote of the
holders of a majority of all outstanding shares entitled to vote on
amendments to the Certificate of Incorporation at a meeting of
shareholders.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this 11th day of
April, 1988.
By: /s/ H.L. Overocker
Hobart Overocker, President
By: /s/ Alfred Ziegler
Alfred Ziegler, Secretary
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Hobart Overocker, being duly sworn, deposes and says that he is the
President of Magicsilk, Inc., the corporation mentioned and described in the
foregoing instrument; that he has read and signed the same and that the
statements contained therein are true.
/s/ H.L. Overocker
Hobart Overocker, President
Sworn to before me this
11th day of April, 1988:
/s/ Velma L. O'Loughlin
Notary Public
My commission expires:
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TENSOR CORPORATION
_______________________________________
Under Section 805 of the Business Corporation Law
_______________________________________
Pursuant to the provisions of Section 805 of the Business Corporation Law,
the undersigned Hobart Overocker, President and Alfred Ziegler, Secretary,
hereby certify:
FIRST: The name of the corporation is TENSOR CORPORATION, formerly
known as TENSOR ELECTRIC DEVELOPMENT CO., INC.
SECOND: That the Certificate of Incorporation of the corporation was
filed with the Department of State, Albany, New York on the 12th day of
December, 1956.
THIRD: That the amendments to the Certificate of Incorporation
effected by this Certificate are as follows:
Paragraph First of the Restated Certificate of Incorporation is
hereby amended to change the name of the Corporation as follows:
First: That the name of the corporation is MAGICSILK, INC.
Paragraph Second of the Restated Certificate of Incorporation is
hereby amended to change the purpose for which the corporation was
formed as follows:
Second: The corporation is formed to engage in any lawful
act or activity for which Corporations may be organized under the
Business Corporation Law of the State of New York, provided that
it is not formed to engage in any act or activity requiring the
consent or approval of any state, official, department, board,
agency or other body.
Paragraph Third of the Restated Certificate of Incorporation is
hereby amended to increase the number of authorized common shares and
authorize a preferred stock as follows:
"Third: The aggregate number of shares which the
corporation shall have authority to issue is 8,000,000 shares, of
which 6,000,000 shares shall be common stock, par value $.10 per
share, and 2,000,000 shares of Preferred Stock, par value $1.00
per share. The Board of Directors shall have authority to
authorize the issuance, from time to time without any vote or
other action by the shareholders, of any or all shares of stock
of the corporation of any class at any time authorized. The
Preferred Stock may be issued from time to time in one or more
series. The number of shares included in any or all series of
any classes of preferred stock and the designations, relative
rights, preferences and limitations shall be determined by the
Board of Directors. The Board of Directors shall thereafter
implement the authority to issue shares of the Preferred Stock by
amendment to the Certificate of Incorporation pursuant to Section
502(d) of the Business Corporation Law of the State of New York.
Fourth: That the amendments to the Certificate of Incorporation were
authorized by a vote of the Board of Directors followed by a vote of the
holders of a majority of all outstanding shares entitled to vote on
amendments to the Certificate of Incorporation at a meeting of
shareholders.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this 6th day of
May, 1986.
TENSOR CORPORATION
/s/ H.L. Overocker
Hobart Overocker, President
/s/ Alfred Ziegler
Alfred Ziegler, Secretary
STATE OF NEW JERSEY )
) ss:
COUNTY OF )
Hobart Overocker, being duly sworn, deposes and says that he is the
President of Tensor Corporation, the corporation mentioned and described in the
foregoing instruments; that he has read and signed the same and that the
statements contained therein are true.
By: /s/ H.L. Overocker
Hobart Overocker,
President
Sworn to before me this 6th day of May, 1986.
/s/ Michael E. Loeb
Notary Public
Exhibit 5
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
January 30, 1998
SoftNet Systems, Inc.
520 Logue Avenue
Mountain View, CA 94043
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
You have requested our opinion in connection with the above-referenced
registration statement (the "Registration Statement"), under which certain
stockholders of SoftNet Systems, Inc. (the "Company") intend to sell up to
2,697,320 shares of Common Stock, par value $.01 per share, of the Company (the
"Shares").
In arriving at the opinion expressed below, we have examined the
Registration Statement and such other documents as we have deemed necessary to
enable us to express the opinion hereinafter set forth. In addition, we have
examined and relied, to the extent we deem proper, on certificates of officers
of the Company as to factual matters, and on the originals or copies certified
or otherwise identified to our satisfaction, of all such corporate records of
the Company and such other instruments and certificates of public officials and
other persons as we have deemed appropriate. In our examination, we have
assumed the authenticity of all documents submitted to us as originals, the
conformity to the original documents of all documents submitted to us as copies,
the genuineness of all signatures on documents reviewed by us and the legal
capacity of natural persons.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized and, with respect to certain shares, when
issued upon conversion of Series A Convertible Preferred Stock or upon exercise
of stock purchase warrants, in accordance with their respective terms and for
the consideration specified therein, will be validly issued, fully paid and
non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not hereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McDermott, Will & Emery
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
SoftNet Systems, Inc.
We consent to the inclusion by reference in this registration statement on
Form S-3 of our report dated December 24, 1997, on our audits of the financial
statements and financial statement schedules of SoftNet Systems, Inc. and
subsidiaries. We also consent to the reference to our firm under the caption
"Experts."
Chicago, Illinois
January 29, 1997
Coopers & Lybrand L.L.P.
