<PAGE> 1
=============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 29, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-27046
QUINTEL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3322277
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Blue Hill Plaza
Pearl River, New York 10965
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 620-1212
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
---------------------------------------------
The number of shares outstanding of the Registrant's common stock is
15,864,164 (as of 4/6/00).
<PAGE> 2
QUINTEL COMMUNICATIONS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED FEBRUARY 29, 2000
ITEMS IN FORM 10-Q
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative
Disclosures About Market Risk None
PART II OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities
and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to
a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES
<PAGE> 3
QUINTEL COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND
FEBRUARY 28, 1999
<PAGE> 4
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 29, NOVEMBER 30,
2000 1999
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,432,817 $ 7,939,567
Marketable securities 35,214,364 36,511,925
Accounts receivable, trade 4,495,022 5,711,967
Deferred income taxes 2,134,375 2,778,329
Due from related parties 275,553 550,112
Prepaid expenses and other current assets 524,523 688,314
------------ ------------
TOTAL CURRENT ASSETS 49,076,654 54,180,214
Property and equipment, at cost, net of accumulated depreciation 750,957 816,533
Long-term investments, at cost 4,119,956 2,097,500
Deferred income taxes 183,032 183,032
------------ ------------
TOTAL ASSETS $ 54,130,599 $ 57,277,279
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 1,033,560 $ 1,793,631
Accrued expenses 4,407,208 5,548,876
Reserve for customer chargebacks 3,759,027 4,618,108
Due to related parties 370,185 368,176
Income tax payable 2,896,469 4,365,104
Deferred income taxes -- 697,106
------------ ------------
TOTAL CURRENT LIABILITIES 12,466,449 17,391,001
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized;
none issued and outstanding
Common stock - $.001 par value; authorized 50,000,000 shares;
issued 15,816,483 shares and 15,469,590 shares, respectively 15,816 15,469
Additional paid-in capital 39,340,928 37,482,479
Retained earnings 4,706,274 3,544,568
Accumulated other comprehensive (loss) income (196,968) 1,045,662
Common stock held in Treasury, at cost, 942,853 shares (2,201,900) (2,201,900)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 41,664,150 39,886,278
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 54,130,599 $ 57,277,279
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
February 29, February 28,
2000 1999
<S> <C> <C>
Net revenue $ 2,698,646 $ 19,805,601
Cost of sales 285,875 16,753,371
------------ ------------
GROSS PROFIT 2,412,771 3,052,230
Selling, general and administrative expenses 2,355,991 2,989,356
------------ ------------
INCOME FROM OPERATIONS 56,780 62,874
Other income 1,881,061 609,241
------------ ------------
1,937,841 672,115
Provision for income taxes 776,135 270,807
------------ ------------
NET INCOME 1,161,706 401,308
------------ ------------
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain from available for sale
securities net of income taxes of ($749,000)
and $230,000, respectively (1,123,000) 345,000
------------ ------------
COMPREHENSIVE INCOME $ 38,706 $ 746,308
============ ============
Basic income per share (Note 2):
Net income $ 0.08 $ 0.03
------------ ------------
AVERAGE SHARES OUTSTANDING 14,913,116 15,783,777
============ ============
Diluted income per share (Note 2):
Net income $ 0.07 $ 0.03
------------ ------------
AVERAGE SHARES OUTSTANDING 15,853,965 15,849,080
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
February 29, February 28,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,161,706 $ 401,308
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 73,399 74,011
Reserve for customer chargebacks (859,081) (3,952,684)
Deferred income taxes (53,152) --
Changes in assets and liabilities:
Accounts receivable 1,216,945 794,670
Prepaid expenses and other current assets 163,791 294,600
Accounts payable (760,071) (969,512)
Income tax payable (1,468,635) (553,310)
Due from/to related parties, net 276,568 215,944
Other, principally accrued expenses (1,141,668) (2,219,026)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,390,198) (5,913,999)
------------ ------------
Cash flows from investing activities:
Purchases of securities (69,960,949) (9,657,698)
Purchase of long-term investment (500,000) --
Proceeds from sales of securities 70,109,630 15,603,973
Other, principally capital expenditures (7,823) --
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (359,142) 5,946,275
------------ ------------
Cash flows from financing activities:
Proceeds from exercised stock options 242,590 --
Purchase of common stock -- (301,870)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 242,590 (301,870)
------------ ------------
Net decrease in cash and cash equivalents (1,506,750) (269,594)
Cash and cash equivalents, beginning of period 7,939,567 2,123,630
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,432,817 $ 1,854,036
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. GENERAL
The consolidated financial statements for the three month periods ended
February 29, 2000 and February 28, 1999 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of
the financial position and operating results for the interim period.
The consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto, together
with management's discussion and analysis of financial condition and
results of operations, contained in the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1999. The results of
operations for the three months ended February 29, 2000 are not
necessarily indicative of the results for the entire fiscal year ending
November 30, 2000.
2. EARNINGS PER SHARE
The following table sets forth the reconciliation of the weighted
average shares used for basic and diluted earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
February 29, February 28,
2000 1999
<S> <C> <C>
Denominator:
Denominator for basic earnings per
share -- weighted-average shares 14,913,116 15,783,777
Effect of dilutive securities:
Stock options 940,849 65,303
----------- ----------
Dilutive potential common shares:
Denominator for diluted earnings
per share -- adjusted weighted-average
shares and assumed conversions 15,853,965 15,849,080
=========== ==========
</TABLE>
Options and warrants to purchase 140,308 and 872,818 shares of common
stock were outstanding for the three months ended February 29, 2000 and
February 28, 1999, respectively, but were not included in the
computation of diluted earnings per share because their effect would be
anti-dilutive.
3. ADVERTISING EXPENSES
The Company's advertising expenses have historically consisted of
television broadcast media and related production costs, telemarketing,
direct-mail, and print media, with all such costs being charged to
operations at the time the related advertising and marketing occurred.
Total advertising and marketing expenses for the three months ended
February 29, 2000 and February 28, 1999 were approximately $118,000
and $13,043,000, respectively.
4. ADOPTION OF SFAS 130, "REPORTING COMPREHENSIVE INCOME"
As of December 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). The adoption of SFAS No. 130 had no impact on the Company's
net income or stockholders' equity. SFAS No. 130 requires
<PAGE> 8
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
unrealized gains and losses on the Company's marketable securities to
be reported in comprehensive income and accumulated other comprehensive
(loss) income. Prior to adoption of this statement, such gains and
losses were reported separately in stockholders' equity. Prior year
financial statements have been reclassified to conform to the
requirements of SFAS No. 130.
5. ADOPTION OF SFAS 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION"
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which was adopted by the Company as of November 30, 1999. This
statement establishes standards for reporting of information about
operating segments in annual and interim financial statements.
Operating segments are defined as components of an enterprise for which
separate financial information is available that is evaluated regularly
by the chief operating decision maker(s) in deciding how to allocate
resources and in assessing performance. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major
customers. The adoption of SFAS No. 131 did not affect the results of
operations or financial position but did affect the disclosure of
segment information as presented in Note 7.
6. INVESTMENTS
In January 2000, the Company increased its equity position to 15.9% of
itarget.com, Inc., a privately held on-line permission based e-mail
marketing and consumer data information company. The Company acquired
the additional approximate 12.2% equity interest pursuant to a stock
swap agreement. The agreement required that 229,862 of the Company's
common shares be issued in exchange for 42,372 newly issued Series B,
convertible preferred shares of itarget.com, Inc. The total investment
was valued at $1.6 million based on the Company's share price on the
date of the closing. On March 29, 2000, itarget.com, Inc. was acquired
by Cybergold, Inc. (Nasdaq:CGLD).
As of February 16, 2000, the Company has sold 240,000 shares of its
investment in SkyMall at an average price of $9.17, yielding total
proceeds to the Company of approximately $2.2 million, for a profit of
approximately $941,000, which is included in the Company's Other
Income for the three months ended February 29, 2000.
7. SEGMENT INFORMATION
The Company's activities are classified into three primary operating
segments: (1) Products and Services billed to consumers by Local
Exchange Carriers (LEC Billed products and services), (2) Customer
Acquisition Services billed directly to long distance carriers,
including post acquisition commissions from long distance usage
(Customer Acquisition services) and (3) Internet Commerce billed
directly to consumers and vendors (E-commerce). The balance of the
Company's operations are immaterial individually and in the aggregate,
and are included as part of Corporate and other. This business segment
delineation is consistent with the Company's management and financial
reporting structure based on products and services. Summarized
financial information by business segment is as follows:
<PAGE> 9
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEGMENT DATA -- NET REVENUES
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
<S> <C> <C>
For the three months ended:
LEC Billed products and services $ 1,702,806 $ 4,882,450
Customer Acquisition services 919,782 14,913,112
E-commerce 49,318 --
Corporate and other 26,740 10,039
----------- -----------
CONSOLIDATED TOTALS $ 2,698,646 $19,805,601
=========== ===========
</TABLE>
SEGMENT DATA -- GROSS PROFIT
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
<S> <C> <C>
For the three months ended:
LEC Billed products and services $ 1,616,327 $ 3,835,427
Customer Acquisition services 836,268 (793,236)
E-commerce (66,564) --
Corporate and other 26,740 10,039
----------- -----------
CONSOLIDATED TOTALS $ 2,412,771 $ 3,052,230
=========== ===========
</TABLE>
SEGMENT DATA -- EBITDA
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
<S> <C> <C>
For the three months ended:
LEC Billed products and services $ 1,519,451 $ 3,197,772
Customer Acquisition services 452,091 (2,312,485)
E-commerce (1,002,765) --
Corporate and other (838,298) (748,099)
----------- -----------
CONSOLIDATED TOTALS $ 130,479 $ 137,188
=========== ===========
</TABLE>
<PAGE> 10
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEGMENT DATA -- DEPRECIATION AND AMORTIZATION
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
2000 1999
<S> <C> <C>
For the three months ended:
LEC Billed products and services $ -- $ --
Customer Acquisition services -- --
E-commerce 27,513 --
Corporate and other 45,886 74,011
------- -------
CONSOLIDATED TOTALS $73,399 $74,011
======= =======
</TABLE>
8. LITIGATION
On or about May 4, 1998, a complaint entitled "Joseph Chalverus, on
behalf of himself and all others similarly situated v. Quintel
Entertainment, Inc., Jeffrey L. Schwartz and Daniel Harvey" was filed
in the United States District Court for the Southern District of New
York; subsequently, a complaint entitled "Richard M. Woodward, on
behalf of himself and all others similarly situated v. Quintel
Entertainment, Inc., Jeffrey L. Schwartz and Daniel Harvey" was filed
in that same court, as was a complaint entitled "Dr. Michael Title, on
behalf of himself and all others similarly situated v. Jeffrey L.
Schwartz, Jay Greenwald, Claudia Newman Hirsch, Andrew Stollman, Mark
Gutterman, Steven L. Feder, Michael G. Miller, Daniel Harvey and
Quintel Entertainment, Inc." (collectively, the "Complaints"). In
addition to the Company, the defendants named in the Complaints are
present and former officers and directors (the "Individual
Defendants"). The plaintiffs seek to bring the actions on behalf of a
purported class of all persons or entities who purchased shares of the
Company's Common Stock from July 15, 1997 through October 15, 1997 and
who were damaged thereby, with certain exclusions. The Complaints
allege violations of Sections 10(b) and 20 of the Securities Exchange
Act of 1934, and allege that the defendants made misrepresentations and
omissions concerning the Company's financial results, operations and
future prospects, in particular, relating to the Company's reserves for
customer chargebacks and its business relationship with AT&T. The
Complaints allege that the alleged misrepresentations and omissions
caused the Company's Common Stock to trade at inflated prices, thereby
damaging plaintiffs and the members of the purported class. The amount
of damages sought by plaintiffs and the purported class has not been
specified.
On September 18, 1998, the District Court ordered that the three
actions be consolidated, appointed a group of lead plaintiffs in the
consolidated actions, approved the lead plaintiffs selection of counsel
for the purported class in the consolidated actions, and directed the
lead plaintiffs to file a consolidated complaint. The consolidated and
amended class action complaint ("Consolidated Complaint") which has
been filed asserts the same legal claims based on essentially the same
factual allegations as did the Complaints. On February 19, 1999, the
Company and the Individual Defendants filed a motion to dismiss the
Consolidated Complaint. The District Court has denied the motion to
dismiss. The Company and the Individual Defendants
<PAGE> 11
QUINTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
have answered the Consolidated Complaint, denying all liability and
raising various affirmative defenses. Discovery has commenced. The
Company believes that the allegations in the Complaints are without
merit, and intends to vigorously defend the consolidated actions. The
Company maintains Directors and Officers liability insurance, which the
Company believes adequately covers damages, if any, that may arise
under the action. No assurance can be given, however, that the outcome
of the consolidated actions will not have a materially adverse impact
upon the results of operations and financial condition of the Company.
<PAGE> 12
3/16/00 7:17:38 AM
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in the following Management's Discussion and Analysis of
Financial Condition and Results of Operations may contain forward-looking
statements and information relating to the Company that are based on the current
beliefs and expectations of Management, as well as assumptions made by and
information currently available to the Company. When used in this Management's
Discussion and Analysis, and elsewhere in this Form 10-Q, the words
"anticipate", "believe", "estimate", and "expect" and similar expressions, as
they relate to the Company are intended to identify forward-looking statements.
Such statements reflect the current views of the Company's management, with
respect to future events and are subject to certain risks, uncertainties and
assumptions, which could cause the actual results to differ materially from
those reflected in the forward-looking statements.
OVERVIEW
The operations of Quintel Communications, Inc. and its consolidated
subsidiaries (collectively, the "Company") are devoted to developing,
operating, and entering into strategic marketing investments with
Internet-based direct marketing companies. It is these Internet-based marketing
companies and related strategic marketing investments that the Company believes
will form the core of its future period net revenues. Previously, the Company
had relied on conventional marketing channels, specifically television broadcast
media, telemarketing, direct-mail, and print advertising to facilitate the
marketing of its consumer based products and services. The Company will continue
to recognize revenues through the offering of consumer products and services,
but will now be conducting its marketing via the Internet. This significant
change in the Company's marketing emphasis to the Internet, and the unproven
reliability and profitability of the e-commerce marketplace, should both be
considered when using the Company's historical results in evaluating the
possibilities of the Company's future operations, cash flows, and financial
position.
In the execution of the Company's shift to the Internet, it commenced
the formation of the "Quintel Network" in the second half of the fiscal year
ended November 30, 1999. The Quintel Network is the Company's portfolio of
strategic marketing investments and marketing partnerships with Internet-based
marketing companies, e-commerce retailers and service providers. Together, the
companies that comprise the Quintel Network market a wide variety of products
and services aimed at the consumer audience. See " -- Quintel Network."
<PAGE> 13
BASIS OF PRESENTATION
Certain amounts for the prior period that are presented in the accompanying
consolidated financial statements, and referred to in the discussions below,
have been reclassified with the current period presentation.
SEGMENT INFORMATION
The Company adopted SFAS No.131, Disclosures about Segments of an Enterprise and
Related Information, as of November 30, 1999. The adoption of SFAS No. 131 did
not affect the results of operations or financial position of the Company, but
did require the Company to disclose its "management" approach determined
segments and present comparatively prepared data for the first quarter of fiscal
1999. The Company's segments operate exclusively in the United States with an
immaterial portion of revenue earned in Canada during the three months ended
February 28, 1999. See "Adoption of Segmental Reporting".
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three months ended February 29, 2000 and
February 28, 1999, respectively. It should be read in conjunction with the
Company's Form 10-K as filed for the year ended November 30, 1999, the Notes
thereto and other financial information included elsewhere in this report.
THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
The Company's net revenues, on a segmental basis, and with disclosure of the
individual segment components, for each of the three months ended February 29,
2000 and February 28, 1999, are detailed in the following tables:
<TABLE>
<CAPTION>
NET REVENUES - BY SEGMENT
CHANGE-INC CHANGE-INC
FEBRUARY (DEC) (DEC)
FOR THE THREE MONTHS ENDED 29, 2000 28, 1999 $$$ %%%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEC Billed products and services $1,702,806 $ 4,882,450 $ (3,179,644) -65%
Customer Acquisition services 919,782 14,913,112 (13,993,330) -94%
E-commerce 49,318 - 49,318 100%
Corporate and other 26,740 10,039 16,701 166%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL $2,698,646 $19,805,601 $(17,106,955) -86%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
NET REVENUES:
<TABLE>
<CAPTION>
CHANGE-INC CHANGE-INC
FEBRUARY (DEC) (DEC)
FOR THE THREE MONTHS ENDED 29, 2000 28, 1999 $$$ %%%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEC BILLED PRODUCTS AND SERVICE COMPONENTS
"900" Entertainment Service termination royalties $ 760,101 $ -- $ 760,101 100%
Club 900 Products 151,319 1,776,542 (1,625,223) -91%
Enhanced Services, principally voice mail 791,386 3,105,908 (2,314,522) -75%
--------------------------------------------------------------------
TOTAL LEC BILLED PRODUCTS AND SERVICES $1,702,806 $ 4,882,450 $ (3,179,644) -65%
====================================================================
CUSTOMER ACQUISITION SERVICE COMPONENTS
Qwest Long distance customer acquisitions $ 42,446 $12,891,234 $(12,848,788) -100%
Qwest Long distance usage commissions 877,336 2,021,878 (1,144,542) -57%
--------------------------------------------------------------------
TOTAL CUSTOMER ACQUISITION SERVICES $ 919,782 $14,913,112 $(13,993,330) -94%
--------------------------------------------------------------------
TOTAL E-COMMERCE $ 49,318 $ -- $ 49,318 100%
--------------------------------------------------------------------
CORPORATE AND OTHER COMPONENTS
Miscellaneous products, list revenue and other $ 26,740 $ 10,039 $ 16,701 166%
--------------------------------------------------------------------
</TABLE>
Net Revenue for the three months ended February 29, 2000 decreased
$17,106,955, or 86%, when compared to the three months ended February 28, 1999.
The most significant portion of the decrease in net revenues, or approximately
$14 million (94%), was attributable to the Company's Customer Acquisition
services segment. See "Transactions with Major Customer and Termination of
Economic Dependence" following the "Liquidity and Capital Resources" section for
a detailed discussion of this decrease.
The decrease in net revenues was also attributable to decreases in net
revenues from the Company's LEC Billed products and services segment of
approximately $3.2 million. These decreases consisted of reductions in the
Company's enhanced service revenues of approximately $2.3 million, or 75%, when
compared with the prior comparable period, as well as decreases in the
Company's Club 900 product net revenues of approximately $1.6 million, or 91%,
when compared with the prior comparable period. These reductions were partially
offset by royalty income of approximately $760,000, earned in consideration for
the termination of the Company's active role in the "900" pay per call business.
For a detailed description of the decrease in net revenues attributable
to LEC Billed products and services, see "Service Bureaus and Local Exchange
Carriers" following the "Liquidity and Capital Resources" section. The
significant cause of the reductions in Club 900 net revenues relates to an
agreement entered into between the Company and Access Resources Services, Inc.
("ARS"), which eliminated the Company's active participation in the "900" pay
per call business (the "ARS Agreement"). Such agreement is more fully described
in "Prior Year Transactions Impacting Current and Future Fiscal Periods".
Additionally, the Company's intentional migration away from
<PAGE> 15
the "900" entertainment service business (which was the exclusive avenue for
Club 900 product marketing and member procurement) materially contributed to the
decrease in such net revenues during the three months ended February 29, 2000.
The royalty agreement referenced above became effective June 1, 1999, and
therefore, there was no comparative prior period royalty revenue.
The Company recorded approximately $49,000 in revenues from its E-commerce
segment in the three months ended February 29, 2000. The majority of these
revenues were the result of fees earned from advertising impressions on its
websites. The Company commenced its Internet initiative in the third quarter of
the fiscal year ended November 30, 1999, and, therefore, the quarter ended
February 28, 1999 did not include revenue from E-commerce activities.
The Company's reported net revenues have historically been a product of the
gross revenues generated within each reporting period less the provision for
chargebacks for the related reporting period, which is recorded as a direct
reduction from such gross revenues, except for revenues generated from royalties
and long distance acquisition commissions, which are not subject to provision
for consumer chargebacks. Revenues from the Company's E-commerce activities are
recorded net of an allowance for doubtful accounts, which provides for
collection adjustments to gross billings for duplicate data, bad data and other
collection reduction amounts.
The Company's gross revenues, on a segmental basis, for the three months ended
February 29, 2000 and February 28, 1999, are presented below:
GROSS REVENUES - BY SEGMENT
<TABLE>
<CAPTION>
CHANGE-INC CHANGE-INC
FEBRUARY (DEC) (DEC)
FOR THE THREE MONTHS ENDED 29, 2000 28, 1999 $$$ %%%
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEC Billed products and services $1,686,165 $ 9,515,031 $ (7,828,866) -82%
Customer Acquisition services 919,782 14,913,112 (13,993,330) -94%
E-commerce 49,318 - 49,318 100%
Corporate and other 26,740 10,117 16,623 164%
- -----------------------------------------------------------------------------------------------------------------
TOTAL $2,682,005 $24,438,260 $(21,756,255) -89%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The factors listed in the net revenue section describing the reasons for the
changes in net revenues for the three months ended February 29, 2000, as
compared to the three months ended February 28, 1999, are directly applicable to
gross revenues, as well.
<PAGE> 16
The provisions for chargebacks for the Company's four segments, where
applicable, are presented below for the three months ended February 29, 2000 and
February 28, 1999:
CHARGEBACKS - BY SEGMENT
<TABLE>
<CAPTION>
CHANGE-INC CHANGE-INC
FEBRUARY (DEC) (DEC)
FOR THE THREE MONTHS ENDED 29, 2000 28, 1999 $$$ %%%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEC Billed products and services $(16,641) $4,632,581 $(4,649,222) -100%
Customer Acquisition services - - - 0%
E-commerce - - - 0%
Corporate and other - 78 (78) -100%
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $(16,641) $4,632,659 $(4,649,300) -100%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in the provision for chargebacks is directly related to
the decrease in the Company's gross revenues, specifically the LEC Billed
products and services segment revenues from enhanced services and the Club 900
product. These products and services were subject to chargeback allowances, and
with the Company's transition away from these revenue streams, the corresponding
effect was a decrease in chargeback allowances in absolute dollars. Actual
chargebacks incurred for services and programs that are no longer being marketed
are charged against the previously established reserves, with any adjustment
being reflected currently.
The Company's cost of revenues during the three months ended February
29, 2000 and February 28, 1999, were comprised of (1) marketing costs directly
associated with the procurement and retention of customers, including direct
response advertising costs, promotional costs and premium fulfillment costs, and
(2) the related billing, collection and customer service costs. During the three
months ended February 28, 1999, the Company's cost of revenues was offset by net
revenue generated from certain premium offerings in conjunction with the
Company's marketing of other products and services. All residual revenues from
such premium offerings have been reflected in the Company's other income section
for the three months ended February 29, 2000 pursuant to the termination of long
distance customer acquisition marketing at November 30, 1999.
The Company's cost of revenues for the three months ended February 29,
2000 and February 28, 1999 are presented below:
<PAGE> 17
<TABLE>
<CAPTION>
SEGMENT DATA - COST OF SALES CHANGE- CHANGE-
FEBRUARY INC(DEC) INC(DEC)
FOR THE THREE MONTHS ENDED 29, 2000 28, 1999 $$$ %%%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEC Billed products and services $ 86,479 $ 1,047,023 $ (960,544) -92%
Customer Acquisition services 83,514 15,706,348 (15,622,834) -99%
E-commerce 115,882 - 115,882 100%
Corporate and other - - - 0%
- -------------------------------------------------------------------------------------------------------------------
TOTAL $ 285,875 $16,753,371 $(16,467,496) -98%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED COST OF SALES, BY COMPONENT
<TABLE>
<CAPTION>
CHANGE- CHANGE-
FEBRUARY INC(DEC) INC(DEC)
FOR THE THREE MONTHS ENDED 29, 2000 28, 1999 $$$ %%%
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advertising, promotion and
fulfillment costs $118,285 $ 17,409,490 $(17,291,205) -99%
Service Bureau fees, including
customer service and psychic
operators 167,590 3,710,438 (3,542,848) -95%
"900" Pay-per-call Premium
net revenues - (4,366,557) 4,366,557 -100%
- ---------------------------------------------------------------------------------------------------------
TOTAL $285,875 $ 16,753,371 $(16,467,496) -98%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
The decrease in cost of revenues is directly attributable to the
Company's significantly reduced marketing efforts and related expenditures
during the three months ended February 29, 2000, when compared to the three
months ended February 28, 1999. The primary factor contributing to the reduction
in these costs resulted from the Company's termination of the marketing of its
residential long distance customer acquisition activities, effective November
30, 1999 - See "-- Transactions with Major Customers and Termination of Economic
Dependence". Decreases in the cost of revenues were also attributable to the
cessation of the Company's active marketing of its "900" pay per call services,
as a premium to potential and acquired long distance customers and the cessation
of the marketing of the Club 900 product, both in accordance with the ARS
Agreement. The advertising, promotion and fulfillment costs decreased by
approximately $17.3 million, or 99%, when compared with the prior year's three
month period. Service bureau fees decreased by approximately $3.5 million, or
95%, when compared to the three months ended February 28, 1999. The reductions
in service bureau fees were directly attributable to the cessation of the
Company's billing of the Club 900 product and the significantly reduced billing
and collection costs associated with its declining residual enhanced service
member base. These reductions were partially offset by the costs of revenues
incurred in the Company's E-commerce segment, which commenced operations in the
third quarter of fiscal 1999.
The Company's selling, general and administrative expenses ("SG&A") are
comprised of (i) compensation costs and related expenses for executive, sales,
finance, information systems and general administration personnel, (ii)
professional fees, (iii) insurance costs, (iv) occupancy and other equipment
rental costs, (v) site development and modification costs related to the
Company's E-commerce segment, and (vi) all other general and miscellaneous
corporate expense items.
The Company's SG&A expenses for the three months ended February 29, 2000
and February 28, 1999 are presented on a segmental basis, below:
CONSOLIDATED -- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
CHANGE- CHANGE-
FEBRUARY INC(DEC) INC(DEC)
FOR THE THREE MONTHS ENDED 29, 2000 28, 1999 $$$ %%%
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEC Billed products and services $ 96,876 $ 637,655 $ (540,779) -85%
Customer Acquisition services 384,177 1,519,249 (1,135,072) -75%
E-commerce 963,714 - 963,714 100%
Corporate and other 911,224 832,452 78,772 9%
- ------------------------------------------------------------------------------------------------------------
CONSOLIDATED TOTALS $2,355,991 $2,989,356 $ (633,365) -21%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in SG&A expense in the three months ended February 29, 2000,
compared to the three months ended February 28, 1999, is primarily attributable
to the Company's reduction in personnel (and all associated costs of insurance,
payroll taxes and overhead utilization). The Company commenced such personnel
reductions in the fourth quarter of fiscal year ended November 30, 1998 and
continued the reductions into the third quarter of the fiscal year ended
November 30, 1999. Additional reductions in SG&A are attributable to the terms
of the 900 Agreement, which was executed in the third quarter of the fiscal year
ended November 30, 1999,
<PAGE> 19
pursuant to which the Company (i) eliminated its media buying operation, which
included a staff of approximately twenty-one employees,(ii) was released from
continuing rent expense obligations under an assignment of a lease for the
office space occupied by such media department, and (iii) disposed of all the
media operation's property and equipment. The costs associated with these items
were a component of total SG&A expenses for the three months ended February 28,
1999, and amounted to approximately $609,000. Total decreases in consolidated
SG&A expense were offset by the commencement of operations of the Company's
E-commerce segment in the latter part of the fiscal year ended November 30,
1999, which generated approximately $964,000 of expense. These expenses were
comprised of site development and modification costs (approximately $630,000),
marketing, sales and engineering salaries and related costs (approximately
$226,000), and other items of general and administrative costs (approximately
$108,000).
The Company's other income classification for the three months ended
February 29, 2000, consists of interest and dividend income earned on the
Company's marketable securities (approximately $528,000), capital gains on the
disposition of 240,000 shares of the common stock of Skymall, Inc., one of the
companies that comprise the Quintel Network (approximately $941,000), and
approximately $503,000 of other income related to payments received by the
Company from residual premium offering based revenues previously associated with
the Company's customer acquisition services. Total other income for the three
months ended February 29, 2000 amounted to $1,881,061, compared with $609,241
for the three months ended February 28, 1999, for an increase of $1,271,820.
Other income for the fiscal year ended November 30, 1999 was comprised entirely
of interest income.
The Company's effective income tax rate is a result of the combination of
federal income taxes at statutory rates, and state taxes. The combined effective
rate was approximately 40% for the three month periods ended February 29, 2000
and February 28, 1999.
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, the Company had cash and cash equivalents of approximately
$6.4 million, reflecting a decrease of approximately $1.5 million, when compared
to the $7.9 million in cash and cash equivalents held at November 30, 1999.
During the three months ended February 29, 2000, net cash used in operating
activities was approximately $1.4 million. The significant components resulting
in this decrease, were (A)(i) payments of corporate income taxes of
approximately $1.5 million, (ii) payments on trade payables of approximately
$760,000, and (iii) payments on accrued expenses of approximately $1.1 million,
offset by (B)(i) collection of accounts receivable of approximately $1.2 million
and (ii) net income of approximately $1.2 million for the three months ended
February 29, 2000.
The approximate $359,000 in net cash used in investing activities during
the three months ended February 29, 2000 was primarily attributable to the
Company's strategic investment in LCS Golf, Inc. ($500,000), one of the
companies that comprises the Quintel Network, offset by proceeds from marketable
security sales exceeding marketable security purchases.
Cash provided by financing investing activities during the three months
ended February 29, 2000 amounted to $242,590, all of which was provided by the
exercise of the Company's employee and director held stock options.
Historically, the Company's primary cash requirements have been to fund the cost
of advertising and promotion. Additional funds have been used in the purchasing
of equipment and services in connection with the commencement of new business
lines and further development of businesses being test marketed. During the
fiscal year ended November 30, 1999, the Company began the process or redefining
itself as an on-line direct marketing provider of consumer products and
services, within the Internet industry. The Company's future plans and business
strategy call for its Internet based E-commerce segment to be its sole operating
focus, and the significant source of all future revenues. This
<PAGE> 20
Internet initiative may have a significant impact on the Company's capital and
liquidity resources relating to the E-commerce segment's possible expenditures
for (i) marketing and advertising campaigns, (ii) the cost of additional
personnel required to occupy executive, operational and administrative
positions, (iii) product development costs, (iv) technology based costs, and (v)
other miscellaneous costs. Our Internet initiative, and its underlying business
plan and strategy, has caused the Company to terminate the marketing of its
legacy products and services. Accordingly, these services will no longer
contribute significantly to the Company's cash flows in subsequent fiscal
periods. This Company wide redefinition should be considered when using the
Company's historical results in evaluating future operations, cash flows and
financial position.
Under currently proposed operating plans and assumptions (including the
substantial costs potentially attributable to the Company's Internet
initiative), management believes that projected cash flows from operations and
available cash resources will be sufficient to satisfy the Company's anticipated
cash requirements for at least the next twelve months. Currently, the Company
does not have any long-term obligations and does not intend to incur any
long-term obligations in the near future. As the Company seeks to extend its
reach into the E-commerce arena, as well as identify new and other consumer and
non-consumer product and services, the Company may use existing cash reserves,
long-term financing or other means to finance such diversification. See "Forward
Looking Information May Prove Inaccurate".
ADOPTION OF SEGMENTAL REPORTING
The Company adopted SFAS No.131, Disclosures about Segments of an Enterprise and
Related Information, effective November 30, 1999. The adoption of SFAS No. 131
did not affect the results of operations or financial position of the Company,
but did require the Company to disclose its "management" approach determined
segments. The Company's segments operate exclusively in the United States with
an immaterial portion of revenue earned in Canada during the three months ended
February 28, 1999.
The Company's reportable operating segments are aligned into three fundamental
areas: (1) Products and Services billed to consumers by Local Exchange Carriers
(LEC Billed products and services), (2) Customer Acquisition Services billed
directly to long distance carriers and wireless carriers (Customer Acquisition
services) and (3) Internet Commerce billed directly to consumers and vendors
(E-commerce). The balance of the Company's operations are immaterial
individually and in the aggregate, and are included as part of Corporate and
other. This business segment delineation is consistent with the Company's
management and financial reporting structure based on products and services.
The Company's LEC Billed product and service segment, which historically
included revenues from voice mail services and telephone entertainment services
(principally comprised of psychic related 900 pay-per-call and club products and
services), are billed and collected through the use of service bureaus, which
act as conduits for the Local and Long Distance Exchange Carriers. The Company's
Customer Acquisition services segment, which has historically included revenues
from residential long distance customer acquisitions and related usage
royalties, as well as prepaid and conventional cellular phone customer
acquisition services, were billed to and collected directly from the parties to
the agreements, and did not require service bureau intervention. Historically,
the services offered by the Company have evolved based on changing consumer
tastes, as well as the impact of telephone company billing practices,
governmental regulation, and most recently, the Internet.
<PAGE> 21
Revenue from the Company's LEC Billed product and service segment's voice mail
and club product components have historically been recognized, net of an
estimated provision for customer chargebacks (which include refunds and
credits), as customers automatically renewed their monthly subscriptions. In
regard to the Company's LEC Billed product and service segment's telephone
entertainment services component, which consisted principally of the 900
pay-per-call activities, up to and including May 31, 1998, the Company
recognized revenues from the telephone entertainment services at the time the
customer initiated a billable transaction, net of an estimated provision for
customer chargebacks. Subsequent to May 31, 1998 through November 30, 1999
these 900 pay-per-call revenues were offered as a premium to the Company's
acquired long distance customers. For periods after November 30, 1999, such
revenues are included in other income and will be immaterial in amount.
In the case of its legacy revenues earned within its LEC Billed product and
service segment, the Company historically estimated the reserve for customer
chargebacks monthly, based on updated chargeback history, with any resulting
adjustments being charged against current revenue. The Company estimated
chargebacks and other provisions for new products and services without a
previous operating history, on currently available experience with similar
products and services, and adjusted such estimates as further information became
available. Since reserves were established prior to the periods in which
chargebacks were actually expended, the Company's revenues may be adjusted in
later periods in the event that the Company's incurred chargebacks vary from the
estimated amounts.
Revenue from the Company's Customer Acquisition services segment were recorded
upon the achievement of certain events particular to the corresponding program's
fulfillment liability. Subsequent to the delivery of the initial sales record to
the respective long distance carrier, the Company may have been required to
provide to the customer certain products and services (fulfillment liability),
such as prepaid cellular telephones and/or complimentary airline ticket
redemption vouchers. These costs were estimated and accrued, as a component of
marketing expense, at the time the associated revenues were recorded. This
estimation is adjusted to actual amounts in subsequent periods. There were no
chargebacks from the Company's long distance acquisition programs.
Revenues from the Company's E-commerce segment for the three months ended
February 29, 2000 amounted to $49,318. Revenues from such segment are expected
to comprise the majority of future fiscal period revenues. Such subsequent
period E-commerce revenues will be recognized upon the completion of the
performance of all of the Company's obligations to a customer or vendor relative
to the particular activity, including delivery of products or services, delivery
of advertising impressions, recording of all product costs, discounts and
fulfillment obligations, and the recording of all other variable direct costs
associated with completing the Company's obligation to the customer or vendor.
Such revenue recognition will be subject to provisions for chargebacks based on
the probability of collection of the particular underlying revenue stream.
<PAGE> 22
TRANSACTION WITH MAJOR CUSTOMER AND TERMINATION OF ECONOMIC DEPENDENCE
During the three months ended February 29, 2000 and February 28, 1999, revenues
from the Company's Customer Acquisition service segment were earned entirely
from the "Residential Distributor Program Agreement" with Qwest. Such revenues
accounted for approximately $920,000, or 35% of the Company's total revenues
during the three months ended February 29, 2000, and $14.9 million, or 75% of
the Company's total revenue during the three months ended February 28, 1999.
During November 1999, Qwest informed the Company that the customers being
acquired for it by the Company were not remaining Qwest customers long enough to
justify the acquisition costs Qwest was required to pay the Company, and,
accordingly, the Company should no longer solicit customers on Qwest's behalf.
Therefore, the Company terminated its marketing efforts regarding the Qwest
customer acquisition program in November 1999. This termination of the Qwest
program marketing is the primary factor for the decrease in the Company's
Customer Acquisition services segment revenue for the three months ended
February 29, 2000. Such segment's revenue decrease totaled $13,973,258, with the
customer acquisition commission revenue decrease amounting to $12,848,234 and
the continuing customer usage revenue decrease amounting to $1,144,542.
PRIOR YEAR TRANSACTIONS IMPACTING CURRENT AND FUTURE FISCAL PERIODS
In June 1999, the Company entered into a series of agreements
(collectively, the "Transaction Agreements") pursuant to which the Company
ceased offering its telephone entertainment services. Included in the
Transaction Agreements is the Agreement Regarding 900 Pay-Per-Call Psychic
Services (the "900 Agreement"), dated as of May 26, 1999, by and between the
Company and Access Resource Services, Inc. ("ARS"), pursuant to which the
Company agreed to refrain until January 17, 2001 from conducting, marketing,
advertising or promoting certain "stand alone" 900 Pay-Per-Call Psychic Services
described in the 900 Agreement (the "900 Psychic Services") directly or
indirectly through any affiliate. In addition, the Company agreed to cease the
conduct of the media buying operation which it conducted under the name "Quintel
Media" and ARS agreed to assume responsibility for the "Quintel Media" employees
and for the lease of the premises used by "Quintel Media" in Fort Lauderdale,
Florida, and to acquire the computer equipment and other furniture, fixtures and
leasehold improvements used by "Quintel Media" at such premises.
In consideration for the Company's acceptance of the terms of the 900
Agreement, ARS and any of its affiliates offering 900 Pay-Per-Call Psychic
Services and/or membership club services, agreed to pay to the Company certain
royalty fees relative to such service offerings. ARS is required to pay such
royalty fees from and after the consummation of the transactions contemplated by
the Transaction Agreements, and until January 17, 2001. For the three months
ended February 29, 2000, these royalties amounted to approximately $760,000, or
28% of the Company's net revenues.
<PAGE> 23
SERVICE BUREAUS AND LOCAL EXCHANGE CARRIERS
In November 1998, three of the LECs (Local Exchange Carriers),
Ameritech Corp., Bell Atlantic Corp. and SBC Communications, Inc., refused to
bill customers for enhanced services provided by the Company. This was a result
of what the LECs claimed was excessive complaints by customers for "cramming"
(unauthorized charges billed to a customer's phone bill) against the Company and
its affiliates. As a result of such LEC imposed billing cessation, in November
1998, the primary billing service provider for the Company's enhanced services,
Billing Information Concepts Corporation ("BIC"), terminated its arrangement
with the Company for providing billing for the Company's enhanced services. BIC
continued to service all data relating to post-billing adjustments to records
billed prior to BIC's self-imposed billing cessation. In December 1998, the
Company entered into an agreement with Federal Transtel, Inc. ("Transtel")
whereby Transtel provided the billing services previously provided by BIC. The
remaining LECs did not alter their billing practices for the Company's services
and the Company continued to offer its enhanced services in those areas through
Transtel from December 28, 1998 to present. During the three months ended
February 28, 1999, the Company billed approximately $5.8 million in gross
enhanced services as compared to approximately $926,000 in the three months
ended February 29, 2000. The enhanced services that continue to be billed are
from the residual customers that remain from marketing efforts undertaken prior
to the November 1998 LEC billing cessation.
QUINTEL NETWORK
In November 1999, the Company began the implementation of its strategy
to create the Quintel Network, a portfolio of marketing partnerships and
strategic investments with Internet marketing companies, e-commerce retailers
and service providers, to allow for the marketing of different products and
services to a detailed database of profiled consumers.
Database Growth and Expansion
The first step in creating the Company's Quintel Network was to grow
the Company's already extensive profiled consumer database. Towards this end,
the Company has made strategic investments in several companies. In tandem with
each of these investments, the Company entered into marketing agreements,
entitling the Company access to these entities' proprietary e-mail databases and
other marketing data. The entities in which the Company made these strategic
investments (and to whose databases the Company gained access) include the
following:
- - SkyMall, Inc., a publicly-traded company (Nasdaq-SKYM) with access to
e-mail addresses and other marketing information for over 3 million
consumers, that utilizes
<PAGE> 24
its website, SkyMall.com, and exclusive agreements with several airline
carriers and travel partners to offer a wide array of products from a
variety of vendors.
- - itarget.com, Inc. is a permission based direct e-mail marketing company
with over 1 million members that have given their consent to be
marketed for various products and services.
- - The Innovation Factory, Inc., a development stage company, intends to
provide business development support, state of the art infrastructure
and necessary capital to promising new companies.
- - GenerationA.com, Inc. provides internet and other computer related
products and services to the over-50 generation.
- - AtYourBusiness.com, Inc. provides a full-range of support services for
small businesses, including assistance with human resources, payroll,
office management and growth management.
- - Montvale Management, LLC provides a full range of on-line mortgage
products and services to homeowners.
The Company is also acquiring additional marketing information from traffic
attracted to GroupLotto.com and MultiBuyer.com, two websites created by a
subsidiary of the Company.
- - GroupLotto.com - This website permits Internet users to play the
lottery free in exchange for providing their e-mail addresses. Players
can win a $2,000,000 jackpot by selecting the winning lottery numbers.
GroupLotto.com accommodates the public's interest in free lotteries by
offering the opportunity to participate in multiple weekly
opportunities to play at no cost, while simultaneously serving as a
valuable marketing information source for the Company's other Internet
activities. The Company has obtained contingent prize based insurance
for the first $1 million jackpot payout.
- - MultiBuyer.com - This website is an online retail location where buyers
consolidate their purchasing power for a variety of offered products
and services and reap the benefits of reduced sales prices that
generally correlate to bulk purchases. On-line consumers can select the
price that they want to pay for a particular product or service. For
the majority of "MultiBuys," as the number of buyers for that product
or service increases, the asking price for the product or service
decreases, until a large enough number of purchasers are accumulated to
allow the seller to deliver such product at the buyers' asking price.
Based on the foregoing alliances that comprise the Quintel Network, the Company
estimates that it presently has access to in excess of 5 million opt-in e-mail
addresses.
<PAGE> 25
Marketing of Products and Services
The second step in creating the Quintel Network is to utilize the
extensive database accumulated by the Quintel Network to generate revenue. The
Company believes this can be achieved by acquiring the right to market a wide
array of products and services to the large potential customer base that
comprises the Company's database. Towards this end, the Company recently entered
into marketing agreements with several different companies for the marketing of
a wide variety of products and services.
These include:
- - Cellstar, Ltd., d/b/a Echostar, providers of the DISH 500 Satellite TV
System and service.
- - SunDial Marketplace Corporation, providers of wireless
telecommunications services from AT&T, Cellular One, AllTel, OmniPoint
and Airtouch, as well as cellular handsets and accessories from Nokia,
Motorola, Qualcomm, Ericcson and Sony.
- - NextCard, Inc., which offers instant on-line approval for the
NextCard(R) Visa(R).
- - GTC Telecom Corp., which offers 5 cent per minute long distance
services.
- - Mortgage.com, Inc., providers of various on-line mortgages and other
programs geared toward the homeowner.
- - LCS Golf, Inc. (Nasdaq - LCSGE), a company that offers golf related
products and services via its website, GolfUniverse.com.
<PAGE> 26
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In accordance with the Company's strategy of building the Quintel
Network, consisting of strategic partnerships through marketing agreements and
equity investment in its marketing partners, the Company executed a Stock Swap
Agreement with itarget.com, Inc., an on-line, permission-based, e-mail database
marketing and development company ("itarget"), dated as of January 20, 2000.
Pursuant to the terms of such Agreement, the Company exchanged 229,862 shares of
its common stock (the "Quintel Shares"), in exchange for 42,372 shares of
itarget's Series B Preferred Stock. In addition, in November 1999, the Company
had acquired 11,450 shares of itarget's Series B Preferred Stock, giving the
Company ownership of an aggregate of 53,822 shares of itarget's Series B
Preferred Stock (the "itarget Shares").
In accordance with the terms of the Stock Swap Agreement, on March 10,
2000, Quintel filed a Registration Statement on Form S-3 (File No. 333-32220)
with the Securities and Exchange Commission (the "Commission") including the
Quintel Shares. Such Registration Statement has not yet been declared effective
by the Commission.
Effective March 30, 2000, itarget was merged into CyberGold, Inc.
(Nasdaq: CGLD), a premier internet incentive company ("Cybergold"). As a result
of this merger, the itarget Shares were converted into 270,886 shares of
CyberGold's common stock. Pursuant to the terms of an indemnification agreement
between Cybergold and the shareholders of itarget, the Company agreed to deposit
27,088 of its Cybergold shares in escrow for a period of one year to secure the
payment of any of itarget's obligations unforeseen at the time of the merger.
The issuance to itarget of the Quintel Shares was exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
pursuant to the provisions of Section 4(2) of the Act, as not involving any
public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NUMBER
- ------
3.1.1 Articles of Incorporation of the Company, as amended (1)
3.1.2 Amendment to the Articles of Incorporation of the Company (2)
3.2 By-Laws of the Company (3)
10.1* Stock Swap Agreement by and between the Company and itarget.com, Inc.
27.1* Financial Data Schedule
<PAGE> 27
- --------------
* Filed herewith.
(1) Filed as an Exhibit to the Company's Registration Statement on Form 8-A,
dated October 23, 1995, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 31, 1998, and incorporated herein by
reference.
(3) Filed as an Exhibit to the Company's Registration Statement on Form S-1
(the "S-1 Registration Statement"), dated September 6, 1995 (File No.
33-96632), and incorporated herein by reference.
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the first
quarter of the fiscal year ending November 30, 2000.
FORWARD LOOKING INFORMATION
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. When used herein, words like "intend,"
"anticipate," "believe," "estimate," "plan" or "expect," as they relate to the
Company, are intended to identify forward-looking statements. The Company
believes that the assumptions and expectations reflected in such forward-looking
statements are reasonable, based on information available to it on the date of
this Quarterly Report, but no assurances can be given that these assumptions and
expectations will prove to have been correct or that the Company will take any
action that it may presently be planning. The Company is not undertaking to
publicly update or revise any forward-looking statement if it obtains new
information or upon the occurrence of future events or otherwise.
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUINTEL COMMUNICATIONS, INC.
By:/s/ Jeffrey L. Schwartz
-------------------------
Jeffrey L. Schwartz
Date: April 14, 2000 Chairman and CEO
By:/s/ Daniel Harvey
-------------------------
Daniel Harvey
Chief Financial Officer
Date: April 14, 2000 (Principal Financial Officer)
<PAGE> 29
Exhibit Index
EXHIBIT
NUMBER
- ------
3.1.1 Articles of Incorporation of the Company, as amended (1)
3.1.2 Amendment to the Articles of Incorporation of the Company (2)
3.2 By-Laws of the Company (3)
10.1* Stock Swap Agreement by and between the Company and itarget.com, Inc.
27.1* Financial Data Schedule
- --------------
* Filed herewith.
(1) Filed as an Exhibit to the Company's Registration Statement on Form 8-A,
dated October 23, 1995, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 31, 1998, and incorporated herein by
reference.
(3) Filed as an Exhibit to the Company's Registration Statement on Form S-1,
dated September 6, 1995 (File No. 33-96632), and incorporated herein by
reference.
<PAGE> 1
STOCK SWAP AGREEMENT
THIS STOCK SWAP AGREEMENT (the "Agreement") is made as of the 20th day
of January, 2000 by and between QUINTEL COMMUNICATIONS, INC., a Delaware
corporation, having an address at One Blue Hill Plaza, Pearl River, New York
10952 ("Quintel") and ITARGET.COM, INC., a California corporation, having an
address at 3655 Nobel Drive, Suite 470, San Diego, California 92122 ("Itarget").
W I T N E S S E T H :
WHEREAS, the parties hereto have agreed to exchange and transfer the
securities referred to in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto, it is agreed as follows:
1. Definitions
1.1 "Act" shall mean the Securities Act of 1933, as amended.
1.2 "Aggregate Sales Proceeds" shall mean the sum of (i) the gross
proceeds received in the aggregate by Itarget upon its sale of
any Quintel Shares during the period between the Effective Date
and the Final Measuring Date, plus (ii) the product of (A) the
maximum number of Quintel Shares which Itarget could have sold
pursuant to the provisions of Section 6 hereof at a sales price
equal to or greater than 125% of the Closing Date Price (as
reported for Qualified Trades by the Nasdaq National Market or
the market upon which the Quintel Common Stock is then traded),
but did not sell, during the period between the Effective Date
and the Final Measuring Date (solely for purposes of this
Section 1.2, the "Section 1.2 Protected Shares"), multiplied by
(B) a fraction, the numerator of which shall be the sum of the
following products:
(x) the number of Section 1.2 Protected Shares Itarget could
have sold on a trading day during the period between the
Effective Date and the Final Measurement Date, multiplied by (y)
the high sales price of the Quintel Common Stock on such trading
day (as reported for Qualified Trades by the Nasdaq National
Market or the market upon which the Quintel Common Stock is then
traded),
and the denominator of which shall be the total number of Section 1.2 Protected
Shares; provided, however, that the total number of Section 1.2 Protected Shares
shall not exceed the difference between (xx) the total number of Quintel Shares
less (yy) the number of Quintel
<PAGE> 2
Shares actually sold by Itarget during the period between the Effective Date and
the Final Measuring Date; and, provided further, however, that for purposes of
the calculation in subpart (ii)(B) of this Section 1.2, for each particular
Section 1.2 Protected Share, the high sales price of the Quintel Common Stock to
be used for each such Section 1.2 Protected Share shall be the high sales price
on the first trading day such Section 1.2 Protected Share could have been sold,
but was not.
1.3 "Change of Control" shall mean any consolidation or merger of
Itarget with or into any other corporation or entity or person,
or any other corporate reorganization, in which the stockholders
of Itarget immediately prior to such consolidation, merger or
reorganization, own securities constituting less than 50% of
Itarget's voting power immediately after such consolidation,
merger or reorganization, or any transaction or series of
related transactions to which Itarget is a party in which
securities constituting in excess of 50% of Itarget's voting
power is transferred, or any transaction in which Itarget is not
the surviving entity.
1.4 "Closing Date" shall mean January 20, 2000.
1.5 "Closing Date Price" shall mean the quotient of (a) the sum of
the following products calculated for each of the twenty (20)
trading days prior to the Closing Date:
(i) the total number of shares of Quintel Common Stock traded on
a trading day, multiplied by (ii) the closing sales price of the
Quintel Common Stock for such trading day, all as reported by
the Nasdaq National Market or the market upon which the Quintel
Common Stock is then traded,
divided by (b) the total number of shares of Quintel Common Stock traded during
the twenty (20) trading days prior to the Closing Date, as reported by the
Nasdaq National Market or the market upon which the Quintel Common Stock is then
traded.
1.6 "Commission" shall mean the Securities and Exchange Commission.
1.7 "Disinterested Directors" shall mean all of the members of the
Board of Directors of Quintel and Itarget excluding Andrew
Stollman and Jonathan Wiesz.
1.8 "Effective Date" shall mean the date the Registration Statement
has been declared effective by the Commission.
1.9 "Escrow Agent" shall mean the law firm of Feder, Kaszovitz,
Isaacson, Weber, Skala & Bass LLP.
<PAGE> 3
1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.11 "Final Measuring Date" shall mean the first business day
following the date that is sixty (60) calendar days after the
Effective Date.
1.12 "Holders" shall mean the holders of the Quintel Shares
subsequent to the Closing Date, provided such holders are either
Itarget or its permitted assigns or any successor to Itarget
resulting from a Change of Control.
1.13 "Itarget Common Stock" shall mean the common stock, $.01 par
value per share, of Itarget.
1.14 "Itarget Preferred Shares" shall mean shares of Itarget's Series
B Preferred Stock, par value $.01 per share, such Series B
Preferred Stock having the same rights and preferences as the
form of Series B Preferred Stock annexed hereto as Schedule
1.14.
1.15 "Protected Quintel Shares" shall mean the maximum number of
Quintel Shares which Itarget could have sold pursuant to the
provisions of Section 6 hereof on any Protected Quintel Share
Trading Day, but did not sell during the period between the
Effective Date and the Final Measuring Date; provided, however,
the total number of Protected Quintel Shares shall not exceed
the difference between (i) the total number of Quintel Shares
issued to Itarget on the Closing Date, less (ii) the number of
Quintel Shares actually sold by Itarget during the period
between the Effective Date and the Final Measuring Date.
1.16 "Protected Quintel Share Trading Day" shall mean any day upon
which the Quintel Common Stock trades during the period between
the Effective Date and the Final Measuring Date for which a
sales price for the Quintel Common Stock is equal to or greater
than 75% of the Closing Date Price (as reported for Qualified
Trades by the Nasdaq National Market or the market upon which
the Quintel Common Stock is then traded).
1.17 "Qualified Trades" shall mean trades of an aggregate of at least
500 shares of Quintel Common Stock on a trading day during
regular trading hours (as reported by the Nasdaq National Market
or the market upon which the Quintel Common Stock is then
traded).
1.18 "Quintel Common Stock" shall mean the common stock, $.001 par
value per share, of Quintel.
1.19 "Quintel Shares" shall mean that number of shares of the Quintel
Common
<PAGE> 4
Stock equal to the quotient of (i) 1,999,980 divided by (ii) the
Closing Date Price.
1.20 "Registration Statement" shall mean the registration statement
filed with the Commission by Quintel that includes the Quintel
Shares.
1.21 "Remaining Eligible Protected Quintel Shares" shall mean the
difference of (i) the total number of Quintel Shares issued to
Itarget on the Closing Date but not yet sold by Itarget, less
(ii) the sum of all Protected Quintel Shares which Itarget could
have sold on all prior Protected Quintel Share Trading Dates,
but did not sell.
1.22 "Sold Quintel Shares' Gross Proceeds" shall mean the sum of all
of the following products:
(i) the number of Quintel Shares sold by Itarget on any trading
day during the period between the Effective Date and the Final
Measuring Date, multiplied by (ii) the greater of (x) the sales
price reported for such sale (as reported by the Nasdaq National
Market or the market upon which the Quintel Common Stock is then
traded) or (y) 75% of the Closing Date Price.
2. Purchase and Delivery of Shares. Upon the Closing Date:
2.1 Quintel shall deliver to Itarget, a stock certificate
representing the ownership interest of the Quintel Shares
registered in the name of Itarget.
2.2 Itarget shall deliver to (i) Quintel, a certificate representing
the ownership interest of 42,372 Itarget Preferred Shares, and
(ii) the Escrow Agent, a certificate representing the ownership
interest of 10,593 Itarget Preferred Shares, both of such
certificates registered in the name of Quintel;
3. Adjustment to Consideration
3.1 Quintel shall pay to Itarget the difference (to the extent such
difference is greater than zero) between $1,499,985.00 less (x)
the sum of (i) the Sold Quintel Shares' Gross Proceeds, plus
(ii) the sum of the following products calculated for each
Protected Quintel Share Trading Day:
(A) the lesser of (xx) the number of the Remaining Eligible
Protected Quintel Shares that are Protected Quintel Shares or
(yy) the number of the Protected Quintel Shares for a Protected
Quintel Share Trading Day, multiplied by (B) the high sales
price of the Quintel Common Stock on such Protected Quintel
Share Trading Day (as reported for Qualified Trades by the
Nasdaq National Market
<PAGE> 5
or the market upon which the Quintel Common Stock is then
traded).
Upon Quintel's delivery of such payment, Itarget shall return to Quintel within
five (5) business days any of its Quintel Shares that were not sold and were not
Protected Quintel Shares. Such payment shall be paid by Quintel to Itarget by
wire transfer no later than five (5) business days after the Final Measuring
Date in accordance with the wiring instructions annexed hereto as Schedule 3.1.
3.2 a. In the event the Aggregate Sales Proceeds exceed
$2,499,975.00, the Escrow Agent shall deliver to Quintel, from
those securities deposited therewith by Itarget pursuant to
Section 2.2(ii) hereof, certificates representing the ownership
interest of that number of Itarget Preferred Shares equal to the
quotient of:
(x) the difference of (i) the lesser of the Aggregate Sales Proceeds or
$2,999,970.00, less (ii) $2,499,975.00, divided by (y) $47.20. Any
remaining shares (or, in the event Quintel is not entitled to any
distributions from the Escrow Agent pursuant to the provisions of this
Section 3.2(a), all of such shares) held by the Escrow Agent shall be
returned by the Escrow Agent to Itarget.
(b) Upon the Aggregate Sales Proceeds equaling
$2,999,970.00, Itarget shall cease selling any Quintel Shares and shall deliver
to Quintel, within two business days after the Aggregate Sales Proceeds equal
$2,999,970.00, a stock certificate evidencing the ownership interest of that
number of shares of Quintel Common Stock equal to the difference of (i) the
total number of Quintel Shares issued to Itarget on the Closing Date, less (ii)
the sum of (x) the total number of Quintel Shares sold by Itarget during the
period between the Effective Date and the Final Measuring Date, plus (y) the
maximum number of Quintel Shares which Itarget could have sold pursuant to the
provisions of Section 6 hereof at a sales price equal to or greater than 125% of
the Closing Date Price (as reported for Qualified Trades by the Nasdaq National
Market or the market upon which the Quintel Common Stock is then traded), but
did not sell, during the period between the Effective Date and the Final
Measuring Date.
(c) Notwithstanding the provisions of Section 3.2(b) hereof,
in the event the Aggregate Sales Proceeds exceed $2,999,970.00, Itarget shall be
required to pay to Quintel an amount equal to the difference of (i) the
Aggregate Sales Proceeds less (ii) the sum of (x) $2,999,970.00 plus (y) the
product of (A) the total number of shares of Quintel Common Stock delivered to
Quintel pursuant to the provisions of Section 3.2(b), multiplied by (B) the
closing price of the Quintel Common Stock on the date the Aggregate Sales
Proceeds first exceed $2,999,970.00 (as reported by the Nasdaq National Market
or the market upon which the Quintel Common Stock is then traded).
In the event any fractional amounts of Itarget Preferred Shares result from the
calculations
<PAGE> 6
stated in Section 3.2(a), Itarget shall pay to Quintel the proportionate dollar
value thereof in lieu of issuing a fractional amount of such security. Such
payment and any other payments required to be paid pursuant to this Section 3.2
shall be paid by Itarget to Quintel by wire transfer no later than five (5)
business days after the Final Measuring Date in accordance with the wiring
instructions annexed hereto as Schedule 3.2.
3.3 If at any time after the Closing Date and prior to Final
Measuring Date there is a Change of Control and, subsequent to
such Change of Control, Itarget is required by Section 3.2 above
to deliver to Quintel (via the Escrow Agent) additional Itarget
Preferred Shares, provision shall be made so that Quintel shall
receive, and Quintel shall accept, the number of shares of stock
or other securities or property to which a holder of the same
number of Itarget Preferred Shares deliverable pursuant to
Section 3.2 would have been entitled in such transaction
constituting the Change of Control. The parties agree to execute
and deliver such certificates or other documents as are
reasonably necessary to carry out the purposes of this Section
3.3. and to deliver promptly to the Escrow Agent such joint
instructions, certificates or documents as are reasonably
necessary for the Escrow Agent to carry out the purposes of this
Section 3.3.
3.4 In order to effectuate the provisions of this Section 3, upon
the sale of any Quintel Shares during the period between the
Effective Date and the Final Measuring Date, Itarget shall
notify Quintel and the Escrow Agent within two (2) business days
after such sale of the number of Quintel Shares sold and the
sales price thereof.
4. Itarget Registration Rights.
4.1 Registration Requirements. Quintel shall use its best efforts to
effect the registration of the Quintel Shares as would permit or
facilitate the public sale or distribution of all the Quintel
Shares by the Holders. Such best efforts by Quintel shall
include the following:
a. The filing by Quintel no later than 52 days after the
Closing Date of the Registration Statement with the
Commission pursuant to Rule 415 under the Act on Form
S-3 (or successor form) or such other appropriate
registration form if Quintel is ineligible to use Form
S-3.
b. Thereafter, using its best efforts to cause such
Registration Statement to be declared effective by the
Commission within 187 days following the Closing Date.
c. Thereafter, abstaining from taking any affirmative
action for a period of three months after the Effective
Date that would cause the Commission
<PAGE> 7
to declare such Registration Statement to be no longer
effective, unless required to do so by any statute, rule
or regulation of the Act, the Exchange Act or any state
securities law, or any other federal or state statute,
rule or regulation.
d. In the event the Registration Statement becomes
ineffective within the three month period after the
Effective Date, to use its best efforts to cause such
Registration Statement to again be declared effective by
the Commission and maintained effective for a cumulative
period of three months after the Effective Date.
e. Prepare and file with the Commission such amendments and
supplements to the Registration Statement and the
prospectus used in connection with such Registration
Statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of
all securities covered by such Registration Statement.
f. Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such
other documents as they may reasonably request in order
to facilitate the disposition of the Quintel Shares
owned by them.
g. Use its best efforts to register and qualify the
securities covered by such Registration Statement under
such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the
Holders; provided that Quintel shall not be required in
connection therewith or as a condition thereto to
qualify to do business in any such states or
jurisdictions.
h. Notify each Holder of the happening of any event as a
result of which the prospectus included in the
Registration Statement, as then in effect, includes an
untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary
to make the statements therein not misleading in the
light of the circumstances then existing.
i. Cause all Quintel Shares registered pursuant to such
Registration Statement to be listed on each securities
exchange on which similar securities issued by Quintel
are then listed not later than the Effective Date.
j. Provide a transfer agent and registrar for all Quintel
Shares registered pursuant to such Registration
Statement and a CUSIP number for all such Quintel
Shares, in each case not later than the Effective Date.
<PAGE> 8
4.2 Failure to Timely File or Register. If for any reason other than
the fault of any of the Holders or force majeure, either (i) the
filing date of the Registration Statement has not occurred by
the end of the 52-day period following the Closing Date or (ii)
the Effective Date has not occurred by the end of the 187-day
period following the Closing Date, the Holders shall have the
one-time right, exercisable only within five (5) business days
following the end of either such period, to rescind the
transactions contemplated by this Agreement. Such rescission
shall only be effectuated upon (i) the notification to Quintel
and the Escrow Agent that all of the Holders wish to rescind the
transactions contemplated by this Agreement and (ii) the
delivery of the certificates representing the Quintel Shares to
the Escrow Agent. If such notice is not timely given or such
certificates are not timely delivered, this Agreement shall
continue in full force and effect. If such notice is timely
given and such certificates are timely delivered, unless Quintel
gives notice to all the Holders and the Escrow Agent within the
next succeeding five (5) business days that Quintel elects, at
its sole option, to pay the aggregate sum of $1,999,980 (the
"Total Cash Payment") to Itarget (or the Holders pro rata to
their ownership interests in the Quintel Shares) and Quintel
pays the Total Cash Payment by wire transfer pursuant to the
wiring instructions annexed hereto as Schedule 3.1 to Itarget
(or pursuant to other wiring instructions delivered by the
Holders subsequent to the Closing Date) within such five (5)
business days, the transactions contemplated by this Agreement
will be rescinded; the issuance of the Itarget Preferred Shares
and the Quintel Shares will be deemed cancelled; the
certificates representing the Itarget Preferred Shares shall be
immediately returned by Quintel to Itarget; the certificates
representing the Quintel Shares issued to Itarget shall be
immediately returned by the Escrow Agent to Quintel; and the
certificates deposited with the Escrow Agent pursuant to the
provisions of Section 2.2(ii) shall be immediately returned by
the Escrow Agent to Itarget. If Quintel gives the requisite
notice to all the Holders and the Escrow Agent that it elects to
pay the Total Cash Payment and pays the Total Cash Payment
(receipt by the Escrow Agent of written confirmation from the
transmitting bank that the Total Cash Payment was delivered
pursuant to the wiring instructions annexed hereto as Schedule
3.1 being sufficient verification by the Escrow Agent that the
Total Cash Payment was paid), the issuance of the Quintel Shares
shall be deemed cancelled, the certificates representing the
Quintel Shares shall be returned by the Escrow Agent to Quintel
and the certificates deposited with the Escrow Agent pursuant to
the provisions of Section 2.2(ii) hereof shall be returned by
the Escrow Agent to Itarget.
4.3 Furnish Information. It shall be a condition precedent to the
obligations of Quintel to take any action pursuant to this
Section 4 with respect to the Quintel Shares of any selling
Holder that such Holder shall furnish to Quintel such
<PAGE> 9
information regarding itself, the Quintel Shares held by it, and
the intended method of disposition of such securities as shall
be reasonably required to effect the registration of such
Holder's Quintel Shares.
4.4 Expenses of Registration. Quintel shall bear and pay all
expenses incurred in connection with any registration, filing or
qualification of the Quintel Shares pursuant to this Section 4
for each Holder, including, without limitation, all
registration, filing and qualification fees, printers' and
accounting fees relating or apportionable thereto and the
reasonable fees and disbursements of one counsel for the
Holders, but excluding underwriting discounts and commissions,
if any, relating to the disposition of such Quintel Shares.
4.5 Indemnification. In the event that any Quintel Shares are
included in a Registration Statement:
a. To the extent permitted by law, Quintel will indemnify
and hold harmless each Holder, any underwriter (as
defined in the Act) for such Holder and each officer,
director and person, if any, who controls such Holder or
underwriter within the meaning of the Act or the
Exchange Act against any losses, claims, damages or
liabilities (joint or several) to which they may become
subject under the Act or the Exchange Act, insofar as
such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations
(collectively, a "Violation") of Quintel: (i) any untrue
statement or alleged untrue statement of a material fact
contained in such Registration Statement, including any
preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto; (ii)
the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading; or (iii)
any violation or alleged violation of the Act, the
Exchange Act, any state securities law or any rule or
regulation promulgated under the Act or the Exchange Act
or any state securities law; and Quintel will pay to
each such Holder, underwriter, officer, director or
controlling person any legal or other expenses
reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the
indemnity agreement contained in this subsection 4.5(a)
shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such
settlement is effected without the consent of Quintel
(which consent shall not be unreasonably withheld), nor
shall Quintel be liable in any such case for any such
loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity
<PAGE> 10
with information furnished expressly for use in
connection with such registration by any such Holder,
underwriter, officer, director or controlling person.
b. To the extent permitted by law, each Holder will
indemnify and hold harmless Quintel, each of its
directors, each of its officers who has signed the
Registration Statement, each person, if any, who
controls Quintel within the meaning of the Act, any
underwriter, any other Holder selling securities in such
Registration Statement and any controlling person of any
such underwriter or other Holder, against any losses,
claims, damages or liabilities (joint or several) to
which any of the foregoing persons may become subject,
under the Act, the Exchange Act or applicable state
securities law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written
information furnished by such Holder under an instrument
duly executed by such Holder expressly for use in
connection with such registration; and each such Holder
will pay any legal or other expenses reasonably incurred
by any person intended to be indemnified pursuant to
this subsection 4.5(b) in connection with investigating
or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement
contained in this subsection 4.5(b) shall not apply to
amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is
effected without the consent of the Holder, which
consent shall not be unreasonably withheld; provided,
further, however, that in no event shall any indemnity
under this Section 4.5 exceed the net proceeds from the
offering received by such Holder.
c. Promptly after receipt by an indemnified party under
this Section 4 of notice of the commencement of any
action (including any governmental action), such
indemnified party will, if a claim in respect thereof is
to be made against any indemnifying party under this
Section 4, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually
satisfactory to the indemnified and indemnifying
parties; provided, however, that an indemnified party
(together with all other indemnified parties which may
be represented without conflict by one counsel) shall
have the right to retain one separate counsel, with the
fees and expenses to be paid by the indemnifying party,
if representation of such indemnified party by the
counsel retained by the indemnifying
<PAGE> 11
party would be inappropriate due to actual or potential
differing interests between such indemnified party and
any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the
commencement of any such action, if materially
prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the
indemnified party under this Section 4, but the omission
so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section
4. Nothing contained herein shall prevent Quintel from
being represented by the Escrow Agent in connection with
any matter whatsoever, whether or not related to the
subject matter hereof.
d. If the indemnification provided for in this Section 4 is
held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any
loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability,
claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the
indemnifying party on the one hand, and of the
indemnified party on the other, in connection with the
Violations that resulted in such loss, liability, claim,
damage or expense, as well as any other relevant
equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to
correct or prevent such statement or omission; provided,
that in no event shall any contribution by a Holder
hereunder exceed the net proceeds from the offering
received by such Holder.
e. The obligations of Quintel and the Holders under this
Section 4 shall survive the completion of any offering
of Quintel Shares in a Registration Statement under this
Section 4 and the termination of this Agreement. No
indemnifying Party in the defense of any such claim or
litigation, shall, except with the consent of each
Indemnified Party, consent to entry of a judgment or
enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
<PAGE> 12
4.6 Reports Under The Exchange Act. With a view to making available
to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the Commission that may
at any time permit a Holder to sell the Quintel Shares to the
public without registration or pursuant to a registration on
Form S-3, Quintel agrees to:
a. timely make and keep public information available, as
those terms are understood and defined in Rule 144 under
the Act at all times after the Effective Date;
b. file with the Commission in a timely manner all reports
and other documents required of Quintel under the Act
and the Exchange Act; and
c. furnish to any Holder, so long as the Holder owns any
Quintel Shares, forthwith upon request (i) a written
statement by Quintel that it has complied with the
requirements of Rule 144 under the Act (at any time
after 90 days after the Effective Date), the Act and the
Exchange Act, or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3, and (ii)
a copy of the most recent annual or quarterly report of
Quintel and such other reports and documents as a Holder
may reasonably request in availing itself of any rule or
regulation of the Commission allowing such Holder to
sell such securities without registration.
5. Quintel Registration Rights. Quintel is hereby granted the registration
rights granted it pursuant to Section 1 of the Amended and Restated
Investors' Rights Agreement, dated November 8, 1999, by and between
Quintel, Itarget (previously known as "LJ Com, Inc.") and Robert London,
a copy of which is annexed hereto as Schedule 5, subject to the
following terms, as defined in the Amended and Restated Investors'
Rights Agreement, being defined for purposes of this Agreement (while
maintaining their meaning for purposes of the Amended and Restated
Investors' Rights Agreement) as follows:
5.1 The "Company" shall mean Itarget.
5.2 "Holder" shall mean Quintel.
5.3 "Registrable Securities" shall mean (i) all of the shares of
Itarget Common Stock (or other capital stock of Itarget) into
which the Itarget Preferred Shares are convertible and, to the
extent the rights to ownership thereto vest in Quintel pursuant
to Section 3.2 hereof, the shares of Itarget Common Stock (or
other capital stock of Itarget) into which the Itarget Preferred
Shares deliverable to Quintel pursuant to Section 3.2 hereof are
convertible; and (ii) any shares of
<PAGE> 13
Itarget Common Stock (or other capital stock of Itarget) issued
as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in
replacement of any of the securities listed in subsection (i) of
this Section 5.3.
From the date the registration statement covering any Registrable Securities is
declared effective by the Commission, and for a period of three months
thereafter, Itarget shall abstain from taking any affirmative action that would
cause the Commission to declare such registration statement to be no longer
effective, unless required to do so by any statute, rule or regulation of the
Act, the Exchange Act or any state securities law, or any other federal or state
statute, rule or regulation. In the event such registration statement becomes
ineffective within the three month period after its effective date, Itarget
shall use its best efforts to cause such registration statement to again be
declared effective by the Commission and maintained effective for a cumulative
period of three months after it first became effective.
6. Limitation on Resale of Quintel Shares. Itarget agrees that it will not
sell on any one trading day that number of Quintel Shares that exceeds
one-third (1/3) of the average daily trading volume of the Quintel
Shares for the preceding five (5) trading days, as reported by the
Nasdaq National Market or the market upon which the Quintel Shares are
then traded.
7. Representations and Warranties of Itarget. Itarget hereby makes the
following representations and warranties to Quintel from and as of the
date hereof through the Closing Date:
7.1 Organization and Qualification. Itarget does not have any
subsidiaries. Itarget is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of California and has the requisite corporate power to own
its properties and to carry on its business as now being
conducted. Itarget is duly qualified as a foreign corporation to
do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by
it makes such qualification necessary.
7.2 Authorization; Enforcement. (i) Itarget has the requisite
corporate power and authority to enter into and perform this
Agreement, to issue and sell the Itarget Preferred Shares and to
acquire the Quintel Shares in accordance with the terms hereof
and the terms of the Itarget Preferred Shares; (ii) the
execution and delivery of this Agreement by Itarget and the
consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary corporate action,
including authorization by a majority of the Disinterested
Directors of the Board of Directors of Itarget, and no further
consent or authorization of Itarget or its Board of Directors or
stockholders is required; and (iii) this Agreement constitutes
the valid and binding obligation of Itarget
<PAGE> 14
enforceable against it in accordance with its terms.
7.3 Capitalization. The authorized capital stock of Itarget consists
of 1,000,000 shares of common stock and 191,391 shares of
preferred stock; without giving effect to the securities to be
issued pursuant to this Agreement, Itarget has 235,389 shares of
Common Stock, 41,391 shares of Series A Preferred Stock and
25,190 shares of Series B Preferred Stock issued and
outstanding. All of these outstanding shares have been validly
issued and are fully paid and non-assessable. No shares of
Itarget Common Stock are entitled to preemptive rights. There
are outstanding options and warrants to purchase 12,630.20
shares of Itarget Common Stock. Except as disclosed in the prior
sentence and on Schedule 7.3 to this Agreement and as
contemplated by this Agreement, there are no other scrip, rights
to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights exchangeable or
convertible into, any shares of capital stock of Itarget, or
contracts, commitments, understandings or arrangements by which
Itarget is or may become bound to issue additional shares of
capital stock of Itarget or options, warrants, scrip, rights to
subscribe for or commitments to purchase or acquire, any shares
or securities or rights convertible into shares, of capital
stock of Itarget. Itarget represents and warrants that it has no
current plan or intention to sell or otherwise issue any shares
of capital stock or securities convertible into or exercisable
for shares of capital stock.
7.4 No Conflicts. The execution, delivery and performance of this
Agreement by Itarget and the consummation by Itarget of the
transactions contemplated hereby do not and will not (i) result
in a violation of the charter or Bylaws of Itarget, or (ii)
conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture,
patent, patent license or instrument to which Itarget is a
party, or result in a violation of any federal, state, local or
foreign law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations)
applicable to Itarget or by which any property or asset of
Itarget is bound or affected. Itarget is not required under
federal, state, local or foreign law, rule or regulation to
obtain any consent, authorization or order of, or to make any
filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Itarget
Preferred Shares in accordance with the terms hereof, provided
that, for purposes of the representation made in this sentence,
Itarget is assuming and relying upon the accuracy of the
relevant representations and agreements of Quintel herein.
7.5 No General Solicitation. None of Itarget, or to Itarget's
knowledge, any of its
<PAGE> 15
affiliates, or any person acting on its behalf, has engaged in
any form of general solicitation or general advertising (within
the meaning of Regulation D under the Act) in connection with
the offer or sale of the Itarget Preferred Shares.
7.6 No Integrated Offering. None of Itarget or, to Itarget's
knowledge, any of its affiliates, or any person acting on its
behalf, has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under
circumstances that would require registration of any of the
Itarget Preferred Shares.
7.7 Brokers. Itarget has taken no action which would give rise to
any claim by any person for brokerage commissions, finders' fees
or similar payments relating to this Agreement or the
transactions contemplated hereby.
7.8 Investment Representation. Itarget is purchasing the Quintel
Shares for its own account and not with a view to resale or
distribution in violation of any securities laws. Itarget has no
present intention to sell the Quintel Shares purchased hereunder
and has no present arrangement (whether or not legally binding)
to sell the Quintel Shares to or through any person or entity;
provided, however, that by the representations herein, Itarget
does not agree to hold any of the Quintel Shares for any minimum
or other specific term and reserves the right to pledge or
dispose of any of the Quintel Shares at any time in accordance
with federal and state securities laws applicable to such pledge
or disposition.
7.9 Accredited Investor. Itarget is an "accredited investor" as
defined in Rule 501 promulgated under the Act. Itarget has such
knowledge and experience in financial and business matters in
general, and investments in particular, so that Itarget is able
to evaluate the merits and risks of an investment in the Quintel
Shares purchased hereunder and to protect its own interests in
connection with such investment. In addition, Itarget has
received such information as it considers necessary or
appropriate for deciding whether to purchase the Quintel Shares.
7.10 Reliance by Quintel. Itarget understands that the Quintel Shares
are being offered and sold in reliance on a transactional
exemption from the registration requirements of federal and
state securities laws and that Quintel is relying upon the truth
and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Itarget set forth herein
in order to determine the applicability of such exemptions and
the suitability of Itarget to acquire the Quintel Shares.
8. Representations and Warranties of Quintel. Quintel hereby makes the
following representations and warranties to Itarget:
<PAGE> 16
8.1 Organization and Qualification. Quintel is a corporation duly
incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate
power to own its properties and to carry on its business as now
being conducted. Quintel is duly qualified as a foreign
corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary.
8.2 Authorization; Enforcement. (i) Quintel has the requisite
corporate power and authority to enter into and perform this
Agreement and to issue and sell the Quintel Shares and acquire
the Itarget Preferred Shares in accordance with the terms
hereof; (ii) the execution and delivery of this Agreement by
Quintel and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action, including authorization by a majority of the
Disinterested Directors of the Board of Directors of Quintel,
and no further consent or authorization of Quintel or its Board
of Directors or stockholders is required; and (iii) this
Agreement constitutes the valid and binding obligation of
Quintel enforceable against it in accordance with its terms.
8.3 No Conflicts. The execution, delivery and performance of this
Agreement by Quintel and the consummation of the transactions
contemplated hereby do not and will not (i) result in a
violation of the charter or Bylaws of Quintel, or (ii) conflict
with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent
license or instrument to which Quintel is a party, or result in
a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to Quintel or
by which any property or asset of Quintel is bound or affected.
Quintel is not required under federal, state, local or foreign
law, rule or regulation to obtain any consent, authorization or
order of, or to make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or issue and
sell the Quintel Shares in accordance with the terms hereof,
except for the registration provisions provided for herein,
provided that, for purposes of the representation made in this
sentence, Quintel is assuming and relying upon the accuracy of
the relevant representations and agreements of Itarget.
8.4 No General Solicitation. None of Quintel, or to Quintel's
knowledge, any of its affiliates, or any person acting on its
behalf has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under
the Act) in connection with the offer or sale of the Quintel
Shares.
<PAGE> 17
8.5 No Integrated Offering. Neither Quintel, or to Quintel's
knowledge, any of its respective affiliates, or any person
acting on its behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy
any security, under circumstances that would require
registration of any of the Quintel Shares.
8.6 Brokers. Quintel has taken no action which would give rise to
any claim by any person for brokerage commissions, finders' fees
or similar payments relating to this Agreement or the
transactions contemplated hereby.
8.7 Investment Representation. Quintel is purchasing the securities
purchased by it hereunder for its own account and not with a
view to resale or distribution in violation of any securities
laws. Quintel has no present intention to sell the securities
purchased by it hereunder and has no present arrangement
(whether or not legally binding) to sell the securities
purchased by it hereunder to or through any person or entity;
provided, however, that by the representations herein, Quintel
does not agree to hold any of the Itarget Preferred Shares for
any minimum or other specific term and reserves the right to
dispose of any of the Itarget Preferred Shares at any time in
accordance with federal and state securities laws applicable to
such disposition.
8.8 Accredited Investor. Quintel is an "accredited investor" as
defined in Rule 501 promulgated under the Act. Quintel has such
knowledge and experience in financial and business matters in
general, and investments in particular, so that Quintel is able
to evaluate the merits and risks of an investment in the
securities purchased by it hereunder and to protect its own
interests in connection with such investment. In addition,
Quintel has received such information as it considers necessary
or appropriate for deciding whether to purchase the securities
purchased hereunder.
8.9 Reliance by Itarget. Quintel understands that the Itarget
Preferred Shares are being offered and sold in reliance on a
transactional exemption from the registration requirements of
federal and state securities laws and that Itarget is relying
upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of Quintel set
forth herein in order to determine the applicability of such
exemptions and the suitability of Quintel to acquire the Itarget
Preferred Shares.
9. Legend. Each certificate representing the Quintel Shares and the Itarget
Preferred Shares shall be stamped or otherwise imprinted with a legend
substantially in the following form:
<PAGE> 18
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE
OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (I)
PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS
BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR
(II) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT, BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE
WRITTEN OPINION OF COUNSEL OF THE ISSUER, OR OTHER COUNSEL REASONABLY
ACCEPTABLE TO THE ISSUER, THAT THE PROPOSED DISPOSITION IS CONSISTENT
WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY
APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW.
10. Escrow Agent
10.1 The parties hereto acknowledge that if any dispute arises with
respect to the securities deposited hereunder with the Escrow
Agent, or if the Escrow Agent receives contradictory
instructions from the parties hereto or any third party, or if
the Escrow Agent is uncertain as to its obligations under this
Agreement, the Escrow Agent shall refrain from taking any action
other than to continue to hold the securities deposited
hereunder in escrow or to institute proceedings described in
subsection 10.3 below, until otherwise directed by a final
judgment of a court of competent jurisdiction.
10.2 The Escrow Agent may assume the genuineness of any document or
signature which appears to it to be genuine (whether or not
original or photocopy) if such document or signature is
presented to it. The Escrow Agent shall have no obligations
other than those specifically set forth herein.
10.3 The Escrow Agent shall not be obligated to, but may, institute
legal proceedings (which, if instituted, shall be in a court in
the City and State of New York) to determine its obligations
hereunder or to seek permission to deposit the securities
deposited hereunder or any portion thereof in court, upon which
act the Escrow Agent shall be relieved of any further
obligations hereunder with respect to such securities.
10.4 The parties hereto agree to reimburse the Escrow Agent for any
expenses it incurs in connection with the performance of its
obligations under this Agreement, and agrees to jointly and
severally indemnify and hold the Escrow Agent harmless from all
suits, claims, actions, judgments, losses, liability, fees,
costs, expenses, damages, or other charges that may be imposed
upon, or
<PAGE> 19
incurred by, the Escrow Agent, in connection with the
performance of its duties hereunder.
10.5 Upon disbursing and disposing of the securities deposited
hereunder and held by the Escrow Agent in the manner provided in
this Agreement, the Escrow Agent shall be released, discharged,
and acquitted of all obligations and liabilities hereunder and
any claims or surcharges made by or on behalf of any party to
this Agreement.
10.6 The Escrow Agent may resign at any time upon written notice to
the parties hereto.
10.7 Nothing contained herein shall prevent the Escrow Agent from
acting as counsel to Quintel in any future proceedings or
transactions, including, without limitation, those arising from
this Agreement or the transactions contemplated hereby.
11. Miscellaneous.
11.1 Notices. Any notice or demand required or permitted to be given
or made hereunder to or upon any party hereto shall be deemed to
have been duly given or made for all purposes if (a) in writing
and sent by (i) messenger or an overnight courier service
against receipt, or (ii) certified or registered mail, postage
paid, return receipt requested, or (b) sent by telegram,
facsimile, telex or similar electronic means, provided that a
written copy thereof is sent on the same day by postage-paid
first-class mail, to such party at the addresses set forth
above, with a copy to:
Feder, Kaszovitz, Isaacson,
Weber, Skala & Bass LLP
750 Lexington Avenue
New York, New York 10022
Attn: Saul Kaszovitz, Esq.
Fax: (212) 888-7776
and to: Luce, Forward, Hamilton & Scripps, LLP
600 West Broadway
Suite 2600
San Diego, California 92101
Attn: Michael G. Fraunces, Esq.
Fax: (619) 232-8311
or such other address as any party hereto may at any time, or from time to time,
direct by
<PAGE> 20
notice given to the other parties in accordance with this Section. Except as
otherwise expressly provided herein, the date of giving or making of any such
notice or demand shall be, in the case of clause (a) (i), the date of the
receipt; in the case of clause (a) (ii), five business days after such notice or
demand is sent; and, in the case of clause (b), the date such notice or demand
is sent.
11.2 Amendment. Except as otherwise provided herein, no amendment of
this Agreement shall be valid or effective, unless in writing
and signed by or on behalf of the parties hereto.
11.3 Waiver. No course of dealing or omission or delay on the part of
any party hereto in asserting or exercising any right hereunder
shall constitute or operate as a waiver of any such right. No
waiver of any provision hereof shall be effective, unless in
writing and signed by or on behalf of the party to be charged
therewith. No waiver shall be deemed a continuing waiver or
waiver in respect of any other or subsequent breach or default,
unless expressly so stated in writing.
11.4 Governing Law. This Agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the
State of New York without regard to principles of choice of law
or conflict of laws.
11.5 Jurisdiction. Each of the parties hereto hereby irrevocably
consents and submits to the jurisdiction of the Superior Court
of the State of New York and the United States District Court
for the Southern District of New York in connection with any
proceeding arising out of or relating to this Agreement, waives
any objection to venue in the County of New York, State of New
York, or such District, and agrees that service of any summons,
complaint, notice or other process relating to such proceeding
may be effected in the manner provided by Section 11.1 hereof.
11.6 Severability. The provisions hereof are severable and in the
event that any provision of this Agreement shall be determined
to be invalid or unenforceable in any respect by a court of
competent jurisdiction, the remaining provisions hereof shall
not be affected, but shall, subject to the discretion of such
court, remain in full force and effect, and any invalid or
unenforceable provision shall be deemed, without further action
on the part of the parties hereto, amended and limited to the
extent necessary to render the same valid and enforceable.
11.7 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and which together
shall constitute one and the same Agreement.
<PAGE> 21
11.8 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement is not
intended, and shall not be deemed, to create or confer any right
or interest for the benefit of any person not a party hereto.
11.9 Assignment. Except as otherwise permitted herein, this
Agreement, and each right, interest and obligation hereunder,
may not be assigned by any party hereto without the prior
written consent of the other parties hereto, and any purported
assignment without such consent shall be void and without
effect.
11.10 Titles and Captions. The titles and captions of the Sections of
this Agreement are for convenience of reference only and do not
in any way define or interpret the intent of the parties or
modify or otherwise affect any of the provisions hereof.
11.11 Grammatical Conventions. Whenever the context so requires, each
pronoun or verb used herein shall be construed in the singular
or the plural sense and each capitalized term defined herein and
each pronoun used herein shall be construed in the masculine,
feminine or neuter sense.
11.12 References. The terms "herein," "hereto," "hereof," "hereby" and
"hereunder," and other terms of similar import, refer to this
Agreement as a whole, and not to any Section or other part
hereof.
11.13 No Presumptions. Each party hereto acknowledges that it has
participated, with the advice of counsel, in the preparation of
this Agreement. No party hereto is entitled to any presumption
with respect to the interpretation of any provision hereof or
the resolution of any alleged ambiguity herein based on any
claim that any other party hereto drafted or controlled the
drafting of this Agreement.
11.14 Incorporation by Reference. The Schedules hereto are an integral
part of this Agreement and are incorporated in their entirety
herein by this reference.
11.15 Entire Agreement. This Agreement embodies the entire Agreement
of the parties hereto with respect to the subject matter hereof
and supersedes any prior Agreement, commitment or arrangement
relating thereto.
11.16 Survival. The representations and warranties made herein shall
survive any investigation made by any party hereto and the
closing of the transactions contemplated hereby for a period of
up to two (2) years from the Effective Date.
11.17 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and
be binding upon, the
<PAGE> 22
respective successors and permitted assigns of the parties
hereto. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto
or their respective successors and permitted assigns any rights,
remedies, obligations, or liabilities, under or by reason of
this Agreement, except as expressly provided in this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have hereunto duly executed this
Agreement as of the day and year first above written.
QUINTEL COMMUNICATIONS, INC.
By:
---------------------------
Name:
Title:
ITARGET.COM, INC.
By:
---------------------------
Name:
Title:
<PAGE> 24
SCHEDULE 1.14
FORM OF ITARGET SERIES B PREFERRED STOCK
<PAGE> 25
SCHEDULE 3.1
WIRING INSTRUCTIONS FOR ITARGET
<PAGE> 26
SCHEDULE 3.2
WIRING INSTRUCTIONS FOR QUINTEL
<PAGE> 27
SCHEDULE 5
COPY OF AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT, DATED
NOVEMBER 8, 1999, BY AND BETWEEN QUINTEL, ITARGET (PREVIOUSLY
KNOWN AS "LJ COM, INC.") AND ROBERT LONDON
<PAGE> 28
SCHEDULE 7.3
ADDITIONAL CAPITALIZATION DISCLOSURE OF ITARGET
Wayne Wooddell holds an option to purchase 5,972.2 shares of Common Stock of
Itarget exercisable at $0.10 per share.
Cruttenden Roth holds warrants to purchase 4,139 shares of Common Stock of
Itarget at an exercise price of $28.99 per share and warrants to purchase 2,519
shares of the Common Stock of Itarget at an exercise price of $52.40 per share.
The existing holders of Itarget's Series A Preferred Stock and Series B
Preferred Stock have entered into an Investors' Rights Agreement with Itarget,
pursuant to which such holders have a right of first offer with respect to
future sales by Itarget of its shares of stock (subject to certain exceptions).
The Investors' Rights Agreement also grants such holders other rights, including
demand, piggy-back and S-3 registration rights.
Cruttenden Roth holds a right of first refusal to participate as a co-managing
underwriter with respect to any public offering conducted by Itarget in the 12
month period ending January 14, 2001.
Itarget intends to approve a Stock Option Plan in the near future. The number of
shares of Common Stock that will be reserved for issuance under such Plan will
not exceed 10% of Itarget's outstanding shares of Common Stock at the time the
Stock Option Plan is approved.
On October 5, 1999, Itarget, Robert London and the then existing holders of
Itarget's Common Stock entered into a Voting Agreement with respect to the
nomination and election of members of Itarget's Board of directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Quintel
Communications, Inc. and Subsidiaries Consolidated Financial Statement as
presented in the Company's Form 10Q for the quarter ended February 29, 2000 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-2000
<PERIOD-START> DEC-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 6,432,817
<SECURITIES> 35,214,364
<RECEIVABLES> 4,495,022
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49,076,654
<PP&E> 1,306,607
<DEPRECIATION> 555,650
<TOTAL-ASSETS> 54,130,599
<CURRENT-LIABILITIES> 12,466,449
<BONDS> 0
0
0
<COMMON> 15,816
<OTHER-SE> 41,648,334
<TOTAL-LIABILITY-AND-EQUITY> 54,130,599
<SALES> 2,698,646
<TOTAL-REVENUES> 2,698,646
<CGS> 285,875
<TOTAL-COSTS> 285,875
<OTHER-EXPENSES> 2,355,991
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,937,841
<INCOME-TAX> 776,135
<INCOME-CONTINUING> 1,161,706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,161,706
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.07
</TABLE>
