Registration No. 333-4319
===========================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
Amendment No. 1
to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_______________
K2 DESIGN, INC.
(Name of small business issuer in its charter)
Delaware 7389 13-3886065
(State or (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number)
organization) Number)
55 Broad Street, New York, New York 10004 (212) 614-0191
(Address and telephone number of principal executive offices and principal
place of business)
DAVID J. CENTNER
K2 DESIGN, INC.
55 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 614-0191
(Name, address and telephone number of agent for service)
_______________
Copies to:
ROBERT W. BURKE, ESQ. MICHAEL D. DIGIOVANNA
SILLS CUMMIS ZUCKERMAN RADIN PARKER DURYEE ROSOFF & HAFT
TISCHMAN EPSTEIN & GROSS, P.A. 529 Fifth Avenue
One Riverfront Plaza New York, New York 10017
Newark, New Jersey 07102 (212) 599-0500
(201) 643-7000
_______________
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration
Statement.
_______________
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. /x/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
===========================================================================
<PAGE>
<TABLE><CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Amount Being Offering Price Per Aggregate Offering Registration
Title of Securities Being Registered Registered Security(1) Price (1) Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (2). . . . . . . . . . . . . . . . . . . 1,150,000 $8.00 $9,200,000 $3,173
Warrants (3) . . . . . . . . . . . . . . . . . . . . 1,150,000 $ .05 $ 57,500 $ 20
Common Stock issuable upon exercise of Warrants(4) . 575,000 $10.00 $5,750,000 $1,983
Representative's Warrants(5)(6) . . . . . . . . . . . 100,000 $.001 $100.00 $1
Common Stock underlying Representative's Warrants(6). 100,000 $8.80 $880,000 $304
Warrants underlying Representative's Warrants . . . . 100,000 $.055 $ 55,000 $19
Common Stock issuable upon the exercise of Warrants
underlying Representatives's Warrants (4) . . . . . 50,000 $10.00 $500,000 $173
Common Stock(7) . . . . . . . . . . . . . . . . . . . 600,002 $8.00 $4,800,016 $1,656
Total Registration Fee . . . . . . . . . . . . . . $7,329
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 150,000 shares issuable pursuant to the Representative's over-
allotment option.
(3) Includes 150,000 Warrants issuable pursuant to the Representative's
over-allotment option
(4) Pursuant to Rule 416 there are also being registered such additional
securities as may be required for issuance pursuant to the anti-
dilution provisions of the Warrants.
(5) To be issued to the Representative or its designees at closing.
(6) Pursuant to Rule 416 there are also being registered such additional
securities as may be required for issuance pursuant to the anti-
dilution provisions of the Representative's Warrants.
(7) These shares are being registered on behalf of certain stockholders of
the Company to satisfy the Company's registration obligations owed to
such stockholders.
_______________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
<TABLE><CAPTION>
K2 DESIGN, INC.
Cross-Reference Sheet
Showing Location in Prospectus of
Information Required by Items in Part I of Form SB-2
Registration Statement
Item Number and Caption Location in Prospectus
----------------------- ----------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus . . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus . . . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information and Risk Factors . . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination for Offering Price . . . . . . . . Outside Front Cover Page of Prospectus; Underwriting
6. Dilution . . . . . . . . . . . . . . . . . . . . Dilution
7. Selling Security Holders . . . . . . . . . . . . Selling Stockholders and Plan of Distribution
8. Plan of Distribution . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus; Selling
Stockholders and Plan of Distribution; Underwriting
9. Legal Proceedings . . . . . . . . . . . . . . . . Business -- Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons . . . . . . . . . . . . . . . . . Management
11. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . Principal Stockholders
12. Description of Securities . . . . . . . . . . . . Description of Securities
13. Interest of Named Experts and Counsel . . . . . . Legal Matters
14. Disclosure of Commission Position on Description of Securities -- Indemnification of Directors
Indemnification for Securities Act Liabilities . and Officers
15. Organization Within Last Five Years . . . . . . . Certain Transactions
16. Description of Business . . . . . . . . . . . . . The Company; Risk Factors; Business; Certain Transactions
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Results of
Operation . . . . . . . . . . . . . . . . . . . . Operations and Financial Condition
18. Description of Property . . . . . . . . . . . . . Business -- Properties
19. Certain Relationships and Related Transactions . Certain Transactions
20. Market for Common Equity and Related Stockholder Dividend Policy; Shares Eligible for Future Sale;
Matters . . . . . . . . . . . . . . . . . . . . . Description of Securities
21. Executive Compensation . . . . . . . . . . . . . Management -- Executive Compensation; Management --
Employment Agreements
22. Financial Statements . . . . . . . . . . . . . . Financial Statements
23. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 28, 1996
PROSPECTUS
1,000,000 Shares of Common Stock
1,000,000 Redeemable Common Stock Purchase Warrants
K2 DESIGN, INC.
_________________
K2 Design, Inc. (the "Company") is offering hereby 1,000,000 shares (the
"Shares") of its common stock (the "Common Stock") and 1,000,000 redeemable
common stock purchase warrants (the "Warrants"). The Shares and Warrants may
be only purchased in this offering together on the basis of one Share and one
Warrant. Thereafter, the Shares and Warrants will be traded separately. Two
Warrants will entitle the registered holder thereof to purchase one share of
Common Stock at a price of $ per share (125% of the initial public
offering price of the Common Stock) at any time commencing on the date of this
Prospectus and terminating on , 2001 (five years from the date of
this Prospectus). The Warrants will be redeemable at a price of $.05 per
Warrant upon not less than 30 days' written notice if the closing price of
the Common Stock has been equal or greater than 140% of the then exercise price
of the Warrants for 20 consecutive trading days ending on the fifth day prior
to the notice of redemption. See "Description of Securities" for additional
terms of the Warrants.
Prior to this offering there has been no public market for the Common Stock
or Warrants. It is currently estimated that the initial public offering prices
of the Common Stock will be between $6 and $8 per share and the Warrants will be
$.05 per Warrant. For factors considered in determining the initial public
offering prices, see "Underwriting." The Company has applied to have the Common
Stock and Warrants approved for quotation on The Nasdaq SmallCap(TM) Market
under the symbols "KTWO" and "KTWOW," respectively.
The Registration Statement of which this Prospectus is a part also
includes 600,002 shares of Common Stock held by certain stockholders of the
Company. These shares will not be included in the underwritten offering of the
Company's securities and may not be sold for six months from the date hereof
without the prior written consent of the Representative (as defined below).
None of the proceeds from the sale thereof will be paid to the Company. Sales
of those shares may be effected by the holders thereof directly to purchasers or
through broker-dealers. See "Selling Stockholders and Plan of Distribution."
___________________
This offering involves a high degree of risk.
See "Risk Factors" commencing on page 5 hereof.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Underwriting Proceeds to
Public Discounts(1) Company (2)
================================================================================
Per Share. . . . . . . . $ $ $
- --------------------------------------------------------------------------------
Per Warrant. . . . . . . $ $ $
- --------------------------------------------------------------------------------
Total (3). . . . . . . . $ $ $
================================================================================
(1) Does not include additional compensation to Donald & Co. Securities
Inc., acting as representative (the "Representative") of the several
underwriters identified elsewhere herein (the "Underwriters"), in the
form of a non-accountable expense allowance of 3% of the gross
proceeds of this offering. The Company has also agreed to sell to the
Representative warrants to purchase up to 100,000 Shares and 100,000
Warrants at $ per Share and $ per Warrant, respectively,
exercisable over a period of four years commencing one year from
the date hereof (the "Representative's Warrants") and to indemnify
the Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act").
See "Underwriting."
(2) Before deducting estimated expenses payable by the Company, including
the Representative's non-accountable expense allowance, of $
($ if the Representative's over-allotment option is exercised
in full), of $ ($ if the Representative's
over-allotment option is exercised in full).
(3) The Company has granted the Representative a 30-day option to purchase
up to 150,000 Shares and 150,000 Warrants upon the same terms and
conditions as set forth below, solely to cover over-allotments, if any.
If such over-
<PAGE>
allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
________________________
The Shares and the Warrants are being offered by the Underwriters
subject to receipt and acceptance by the Underwriters, subject to approval of
certain legal matters by counsel and subject to prior sale. The Underwriters
reserve the right to withdraw, cancel or modify this offering and to reject any
order in whole or in part. It is expected that delivery of certificates will be
made against payment therefor on or about , 1996, at the
offices of Donald & Co. Securities Inc., 65 East 55th Street, New York, New
York 10022.
DONALD & CO. SECURITIES INC.
The date of this Prospectus is , 1996
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
The photographs presented on the inside front cover and inside back cover of
this Prospectus depict pages from Web sites, Intranets and proprietary on-line
services and collateral marketing materials designed and created by K2 Design,
Inc., in whole or in part, and are not necessarily indicative of future
projects. Since Web sites vary significantly in their size and complexity, the
scope of services rendered by the Company in connection with particular
projects has ranged from limited consulting services to complete creative and
technical design. See
"Business."
IBM Deep Blue vs. Kasparov Chess Challenge
Together with Ogilvy & Mather Advertising, K2 designed and created this Web site
to promote a chess match between Gary Kasparov and an IBM computer.
Features:
* Capture of live video feed
of the Match
* Real-time chat boards
* Animation to display
progress of the Match
K2 Design, Inc
K2 Design, Inc.
K2 Design, Inc.
K2 Design, Inc.
Producing the
Internet
LIVE!
www.chess.ibm.park.org
Public Theater
K2 created this Web site and incorporated the theater's intricate (and already
well-known) graphic style. This Web site includes:
* Pre-recorded portions of
"Bring In `Da Noise,
Bring In `Da Funk"
* Capture of live video feed
Opening night simulcast
of scenes from the opening
night cast party for
"Noise/Funk."
* Three-dimensional VRML
walk-through of a theater.
On-line promotion of "THE TEMPEST"
starring Patrick Stewart
www.publictheater.org
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Copy Rights Netscape Communications, the Netscape Communications Logo,
Netscape and News Navigator are trademarks of Netscape Communications
Corporation. Netscape has not endorsed or otherwise sponsored the products
or services described herein.
Outside Cover Spread/CMYK
<PAGE>
[PHOTOGRAPHS]
www.prusec.com
MCI
Expert Business Solutions
K2 designed and created this page for an MCI Intranet.
America Online
Games Channel
AOL engaged K2 to create a new identity for its Games Channel section on its
proprietary on-line service, including name and new logo, along with postcards,
posters, promotional marketing kit, and animated art.
K2 also designed the graphic interfaces for this section.
America Online
Developers Studio
K2 designed and created this Web site that was also duplicated on AOL's
proprietary on-line service.
K2 was also responsible for creation of a product identity, including name and
logo, for a software product developed by AOL for on-line content providers,
sales promotion kit and CDROM jewel case with silk screened cd.
Prudential Securities
K2 designed this site which is Prudential Securities Virtual Branch Office.
Features:
* Wealth accumulation calculator
* Geographic branch locator
* Financial personality quiz
* Daily market updates
www.aol.com/about/devstudio/
National Association Of
Printers & Lithographers
K2 designed and created this site that includes a database application utility
that enables users to input certain sales and operating data and instantly
generate a bar chart of statistical information comparing their data to the rest
of the industry.
www.k2design.com Content, Tools & Creative Solutions For The Digital World
www.k2design.com
K2 was engaged by marketplaceMCI to design and create virtual retail stores on
marketplaceMCI for Champs Sporting Goods, Footlocker and Lady Footlocker.
Columbia House
Video Library
Database driven library of television and movie classics.
K2 was responsible for the creative design and html programming within this
transactionally driven site.
marketplaceMCI
K2 redesigned the graphics and copy for this site, MCI's on-line shopping mall.
Morgan Stanley's "The Internet Report" named the site one of the eight "coolest
Web sites for commerce."
www.vplaces.com
Pipeline New York
K2 designed and created point-of-purchase displays, diskette covers and
packaging along with thematic advertising and marketing campaigns.
America Online
Virtual Places
Virtual Places utilizes chat technology on the World Wide Web.
Features:
* Animated JAVA Applications
* Virtual character creation
* Printed press kits.
Button Icons
www.columbiahouse.com
www2.pcy.mci.net/marketplace
Portfolio
Inside Spread/CMYK
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference
to the more detailed information and financial statements, including the
notes thereto, appearing elsewhere in this Prospectus. Each prospective
investor is urged to read this Prospectus in its entirety. Unless
otherwise indicated, all financial information and share and per share
information in this Prospectus has been restated to reflect the
recapitalization described in "Certain Transactions -- Formation and
Financing of the Company" and assumes (i) no exercise of outstanding
options to purchase an aggregate of 100,000 shares of Common Stock or
options which may be granted to purchase 125,000 additional shares under
the Company's stock option plan, (ii) no exercise of the Warrants offered
hereby, (iii) no exercise of the Representative's over-allotment option and
(iv) no exercise of the Representative's Warrants. Unless the context
otherwise requires, the "Company" refers to K2 Design, Inc., a Delaware
corporation, its wholly-owned subsidiary and its predecessor entities.
Certain terms used in this Prospectus are defined in the Glossary
on page 49.
THE COMPANY
The Company's primary business is the design and creation of sites
("Web sites") for commercial organizations on that part of the Internet
known as the World Wide Web. The Company has designed and created, alone and
with others, more than 35 Web sites, including Web sites for the customers of
MCI Telecommunications Corporation ("MCI"), a subsidiary of MCI Communications
Corporation, and for Prudential Securities, America Online Incorporated and
International Business Machines, Inc., among others. Accordingly,
management believes that the Company is a recognized provider of these
services.
Web sites are increasingly being utilized as a new medium for
advertisement, promotion and technical support of an organization's
products and services. The Company believes Web sites can provide
commercial organizations benefits in addition to those available through
conventional media, including the ability to engage and entertain
consumers, provide in-depth information, reduce selling and operating
costs, expand distribution channels, promote major sporting and
entertainment events, monitor popularity of content and make timely
changes in response to real-time feedback. Web sites also offer businesses
the ability to obtain certain information about visitors to their sites.
To be effective, it is essential that a Web site be more than
attractive and that both the Web site and the information therein be easily
accessible and intuitively organized. As a provider of these services, the
Company must combine creative and technical expertise to meet its
customers' needs. The Company's services add value to Web site projects at
every stage, from concept development through completion. Web sites vary
significantly in their size and complexity, and the scope of services
rendered by the Company in connection with projects has ranged from limited
consulting services to complete creative and technical design and
construction of multi-level sites, including capture of live video feeds and
audio feeds from remote locations. Should a customer so desire, the Company
also offers numerous integrated services in conjunction with Web site projects,
including traditional graphic design services such as logo design for the
Web site or a particular product, brochures, point-of-sale displays and
other collateral marketing materials and print advertisement design and
layout. The Company is also engaged in preliminary negotiations to license
a World Wide Web software program known as Visitrac and plans to develop
another program known as Web Express. Visitrac is intended to provide detailed
information about visitors to a particular Web site and Web Express is intended
to enable an individual or organization to design a graphically enhanced Web
site without incurring substantial design and development costs. Beta testing of
Visitrac is expected to commence in July 1996. Research and development of Web
Express has not commenced. See "Business -- K2's Services."
The Company markets its services directly and seeks to form strategic
marketing relationships with third parties. To date, the Company's only
significant continuing strategic marketing relationship has been and
continues to be with MCI. During 1995, the Company designed and created
one Web site for MCI and five Web sites for MCI's customers on MCI's online
shopping mall, marketplaceMCI. The Company is aware that MCI is presently
redefining its online shopping mall concept and, therefore, marketplaceMCI
may not provide any future business for the Company. Nevertheless, the Company
continues to derive revenues from another Internet initiative of MCI commenced
in February 1996 called "Webworks," pursuant to which MCI salespersons offer
comprehensive Web site services to their customers and potential customers in
the northeastern United States. In connection with Webworks, MCI co-markets the
Company's services and after pre-screening an interested customer, introduces
that customer to the Company. The Company has been advised that it is
considered by MCI to be a "best of breed" vendor. However, MCI has no obligation
to refer projects to the Company, is expected
-1-
<PAGE>
to refer Webworks projects to others, and utilizes the services of certain
of the Company's competitors for other Web site projects. The Company has
commenced work on two projects generated from Webworks, including one for
the New Jersey Sports and Exposition Authority pursuant to a non-binding
letter of intent for the design and creation of the main Web site for the
Meadowlands Sports Complex.
The Company has designed and created, alone and with others, more than 35
Web sites, including:
- Together with Ogilvy & Mather Advertising, the design and creation
of a Web site for International Business Machines, Inc. ("IBM")
(http://www.chess.ibm.park.org), to promote a chess match between Gary
Kasparov and an IBM computer that utilizes a computer chip called "Deep
Blue." The Web site incorporated the capture of live video feed of the match,
real-time chat boards, simultaneous transcription of commentary and the
integration of animation to display the progress of the match. Media reports
indicated that the Web site received approximately 5 million hits during the
match (hits are an indicator of the volume of traffic at a Web site).
- The design and creation of a Web site that is Prudential
Securities' Virtual Branch Office (http://www.prusec.com), containing
interactive features such as a wealth accumulation calculator, geographic
branch locator, daily market updates and a financial personality quiz.
- The redesign of the graphics and copy for MCI's marketplaceMCI Web
site (http://www2.pcy.mci.net/marketplace), MCI's online shopping mall.
Morgan Stanley's, "The Internet Report" named the site one of the eight
"coolest Web sites for commerce." During that project, the Company was
engaged to design and create a virtual retail store in the marketplaceMCI
mall for Champs Sporting Goods and thereafter for related businesses,
Footlocker and Lady Footlocker, and other unrelated businesses.
- The design and creation of a Web site for The Joseph Papp Public
Theater that was originally used to publicize its production of "The
Tempest," starring Patrick Stewart (http://www.publictheater.org). The
Company incorporated the theater's intricate (and already well known)
graphic style into the Web site, which was originally designed to accommodate
several Web browsers, including most versions of the Netscape Navigator,
America Online, Pipeline, Mosaic, Spyglass and Chameleon. The Web site
integrated standard production photographs from The Tempest with a plot summary
of the show, to create a click-to-enlarge tour of the production. The Web
site was launched at the after-show party following its opening performance.
Thereafter, the theater hired the Company to design and create another Web site
to promote its hit Broadway show, "Bring on Da Noise/Bring on Da Funk," on
which, among other things, was capture of live video feed from the opening
night party and pre-recorded portions of the show. The site also featured a
three-dimensional VRML (virtual reality mark-up language) walk-through of a
theater, digitized portions of the show's soundtrack, live commentary and
electronic mail telegram capabilities to the cast. VRML is a three-dimensional
browsing environment that is an advanced state of environment creation on the
Web.
- The creation of product identity, including name and logo, for a
software product developed by America Online Incorporated ("AOL") for
potential on-line content providers, together with a Web site dedicated to
that product (http://www.aol.com/about/devstudio/). AOL needed full
collateral systems as well as multiple online presences to announce and
advertise the tools. The Web site features multi-level informational
architecture, and was replicated as a location on AOL's proprietary on-line
service. The Company also designed and created a variety of collateral
products, including CD-ROM packaging.
- The design and creation of a Web site for the National Association
of Printers and Lithographers (http://www.napl.org) that includes
a database application utility that enables users to input certain sales
and operating data and instantly generate a graphical representation of
statistical information comparing their data to the rest of the industry.
The Company was founded in 1993 and initially operated a traditional
graphic design business. In August 1994 the Company shifted its principal
business to Web site design and creation but did not begin to generate
significant revenues therefrom until late 1995. The Company's principal offices
are located at The New York Information Technology Center, 55 Broad
Street, New York, New York 10004 and its telephone number is (212) 614-0191.
The Company's Web site is located at http://www.k2design.com.
-2-
<PAGE>
<TABLE><CAPTION>
THE OFFERING
<S> <C>
Securities offered by the Company . . . . . . . . . . . . . . . 1,000,000 Shares of Common Stock and 1,000,000
Warrants, which may be only purchased in this
offering on the basis of one Share and one Warrant.
Two Warrants entitle the registered holder thereof
to purchase one share of Common Stock. See
"Description of Securities."
Securities offered by Selling
Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 600,002 shares of Common Stock. These shares
may not be sold for a period of six months from
the date hereof without the prior written consent
of the Representative and will not be included in
the underwritten offering of the Company's securities.
Sales of these shares may be effected by the holders
thereof directly to purchasers or through broker-dealers.
See "Selling Stockholders and Plan of Distribution."
Offering Price . . . . . . . . . . . . . . . . . . . . . . . . $ per share of Common Stock.
$.05 per Warrant.
Common Stock outstanding prior
to this offering . . . . . . . . . . . . . . . . . . . . . . . 2,495,482 shares of Common Stock.
Common Stock to be outstanding
after the offering . . . . . . . . . . . . . . . . . . . . . . 3,495,482 shares of Common Stock.
Warrants -- Number to be outstanding
after the offering . . . . . . . . . . . . . . . . . . . . . . 1,000,000 Warrants.
Exercise Price . . . . . . . . . . . . . . . . . . . . $ per share, subject to adjustment in certain cases.
See "Description of Securities."
Exercise Period . . . . . . . . . . . . . . . . . . . . Commencing on the date hereof and expiring five years from
the date hereof.
Redemption . . . . . . . . . . . . . . . . . . . . . . Commencing on the date hereof, the Warrants will be
redeemable in whole or in part at the Company's option at a
price of $.05 per Warrant upon not less than 30 days'
written notice, if the closing price of the Common Stock
has been equal to or greater than 140% of the then exercise
price of the Warrants for 20 consecutive trading days
ending on the fifth day prior to the notice of redemption.
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . Working capital and general corporate purposes.
Proposed Nasdaq symbols (1)
Common Stock . . . . . . . . . . . . . . . . . . . . . KTWO
Warrants . . . . . . . . . . . . . . . . . . . . . . . KTWOW
Boston Stock Exchange Listing(1) . . . . . . . . . . . . . . . Application has been made to list the Common Stock
and Warrants on the Boston Stock Exchange. There can be no
assurance that such application will be approved or that
trading, if commenced, will continue.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of the securities offered hereby involves a high
degree of risk. Prospective investors should consider
carefully certain risks concerning the Company and its
business. See "Risk Factors."
</TABLE>
__________________________________
(1) Quotation on The Nasdaq Small Cap(TM) Stock Market and listing on the
Boston Stock Exchange does not imply that a meaningful, sustained
market for the Common Stock or the Warrants will develop. See "Risk
Factors -- Broker-Dealer Sales of Securities of the Company."
-3-
<PAGE>
Summary Consolidated Financial Information
The summary financial information presented below is derived from the
consolidated financial statements of the Company and its subsidiary. The
Company was founded in 1993 and entered into its first Web site design and
creation transaction with a customer in 1994. Accordingly, and recognizing
that the Company has engaged in its current primary line of business only
for approximately two years, the Company has a limited operating history
upon which an evaluation of the Company and its prospects can be based.
Management therefore believes that period-to-period comparisons of the
Company's results of operations are not indicative of future results. The
financial information presented below should be read in conjunction with
the financial statements and notes thereto included elsewhere in this
Prospectus. In addition, operating results for the three months ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. See "Risk Factors -- Recent
Operating Losses; Limited Operating History; Early Stage of Development"
and "Risk Factors -- Fluctuations in Quarterly Operating Results, Cash
Requirements and Margins."
<TABLE><CAPTION>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Three Months
Ended
Fiscal Year Ended March 31,
December 31, (Unaudited)
----------------------------- ------------------------------
1994 1995 1995 1996
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $249,379 $1,196,208 $ 33,639 $ 512,434
Direct Salaries and Costs 215,865 957,027 68,152 499,109
------- --------- ------- ---------
Gross Profit (Loss) 33,514 239,181 (34,513) 13,325
Selling, General and
Administrative Expenses 73,601 200,931 12,449 125,958
Depreciation 13,013 24,485 4,779 9,113
-------- --------- -------- ----------
Income (loss) from operations (53,100) 13,765 (51,741) (121,746)
Interest expense, net -- 869 319 982
---------- ---------- -------- ----------
Income (loss) before provision
for income taxes (53,100) 12,896 (52,060) (122,728)
Pro Forma income tax expense (1) - 0 0 0
--------- ----------- --------- -----------
Pro Forma net income (loss) (1) $(53,100) $ 12,896 $(52,060) $ (122,728)
======== ========== ======== ==========
Pro Forma net income (loss) per
equivalent common share (1) $ .01 $ (.06)
=========== ============
Common Stock and equivalent
common stock outstanding 1,946,373 2,013,040
=========== =========
March 31, 1996
(Unaudited)
----------------------------------------------------
Actual Pro Forma(2) As Adjusted(3)
--------------- ---------------- ----------------
Working Capital (deficit) . . . . . . . . . . . $(23,472) $ 595,928 $6,185,928
Total assets . . . . . . . . . . . . . . . . . $559,174 $1,178,574 $6,768,574
Stockholders' equity . . . . . . . . . . . . . $ 69,222 $ 688,622 $6,278,622
</TABLE>
________________________
(1) For the period from inception, March 1, 1993, through December 31, 1994,
the Company operated as a partnership. Effective January 1995 the
Company elected to be taxed as an S Corporation under the provisions
of the Internal Revenue Code of 1986. Effective January 1996, the
Company's S Corporation election was voluntarily revoked, subjecting
the Company to corporate income taxes subsequent to that date. Pro
forma income tax expense, pro forma net income (loss) and pro forma
net income (loss) per equivalent common share represent the Company's
income tax position had the Company been a C Corporation for all
periods presented.
(2) Adjusted to reflect the sale of 400,002 shares of Common Stock in a
private placement subsequent to March 31, 1996.
(3) As further adjusted to reflect the sale of 1,000,000 shares of Common
Stock and 1,000,000 Warrrants offered by the Company hereby and the
application of the estimated net proceeds therefrom, assuming initial
public offering prices of $6.95 per share of Common Stock and $.05 per
Warrant.
-4-
<PAGE>
RISK FACTORS
An investment in the Company involves a high degree of risk. The
following risk factors should be considered carefully before purchasing the
securities offered hereby.
CASH FLOW DEFICIT; NEED FOR ADDITIONAL FINANCING; LACK OF LIQUIDITY
The Company's current primary focus is on increasing its Web site
design and creation business. As a result, the Company has hired and will
continue to hire additional personnel and has incurred and will continue to
incur substantial expenses related to administration, production, technical
resources, marketing, customer support and infrastructure in order to
enhance and expand its operations. In addition, the Company had an
operating cash flow deficit of $(2,404) in 1995 and of $(172,575) in
the three months ended March 31, 1996, which hampered the Company's ability
to expand. The Company is dependent on the successful completion of this
offering for working capital in order to be competitive, to meet the increasing
demands for service, quality and pricing and for any expansion of its business.
While the Company believes the proceeds of this offering together with available
funds and cash expected to be generated by operations will be sufficient to
finance its operations for at least one year, the Company may nevertheless
require substantial alternative financing in order to satisfy its working
capital needs, which may be unavailable or prohibitively expensive since
the Company's only assets available to secure additional financing are
accounts receivable. Should such financing be unavailable or prohibitively
expensive when the Company requires it, the Company would not be able to
finance any expansion of its business and may not be able to satisfy its working
capital needs, either of which would have a material adverse effect on the
Company's business, operating result and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RECENT OPERATING LOSSES; LIMITED OPERATING HISTORY; EARLY STAGE OF
DEVELOPMENT
The Company's revenues for the years ended December 31, 1994 and 1995
were $249,379 and $1,196,208, respectively, with a net loss of $(53,100) in
1994 and net income of $11,896 in 1995. The Company's revenues for the
first quarter of 1995 and 1996 were $33,639 and $512,434 with net losses of
$(52,060) and $(122,728), respectively. The Company expects that its revenues
in the quarter ending June 30, 1996 will be comparable to those in the quarter
ended March 31, 1996, and that it will incur a loss in the June 30 quarter
substantially higher than that in the March 31 quarter. There can be no
assurance that the Company will be profitable in the future or that revenue
growth, if any, can be sustained. In addition, as of March 31, 1996, the
Company had stockholders' equity of $69,222 and pro forma stockholders' equity
of $688,622, as adjusted to reflect the sale of 400,002 shares of Common Stock
in a private placement subsequent to March 31, 1996.
The prospects of the Company (which has only been engaged in its
primary line of business for approximately two years) must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their early stage of development, particularly companies in
new and rapidly evolving markets and especially those in Internet and other
computer related markets. There can be no assurance that the Company will
be successful in addressing these risks. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
EVOLVING MARKETING STRATEGY
The Company's marketing efforts have substantially focused on, and
will for the foreseeable future continue to focus on, developing strategic
relationships with other companies, such as advertising agencies and
Internet service providers ("Channel Sources") that seek to augment their
businesses by directly or indirectly offering to their customers Web site
services provided by the Company and other third parties. To try to avoid
any conflict with a Channel Source, the Company does not intend to offer
services to customers referred by a particular Channel Source that could be
provided to those customers by that Channel Source. Since the Company does
not expect to offer its full range of services to these customers, projects
for them may be less profitable than full-service production projects for
other customers.
-5-
<PAGE>
Should a Channel Source favor other providers of similar services,
fail to effectively market the Company's services as a result of the
Channel Source's competitive position or otherwise, or not utilize the
Company's services to the extent anticipated by the Company, the Company
may also be adversely affected. To date, the Company's only continuing
significant Channel Source relationship has been and continues to be with MCI.
The inability to recruit, manage or retain additional Channel Sources, or
their inability to market the Company's services effectively or provide
timely and cost-effective customer support and service, could materially
adversely affect the Company's business, operating results and financial
condition. See "Business -- Marketing -- Relationship with MCI."
RELATIONSHIP WITH MCI
To date, the Company's only significant continuing Channel Source
relationship has been and continues to be with MCI. During 1995, the
Company designed and created one Web site for MCI and five Web sites for
MCI's customers on MCI's online shopping mall, which collectively accounted
for approximately 15% of the Company's revenues for that year. The Company
is aware that MCI is presently redefining its online shopping mall concept,
marketplaceMCI and, therefore, marketplaceMCI may not provide any future
business for the Company. Nevertheless, the Company continues to derive
revenues from another Internet initiative of MCI commenced in February 1996
called "Webworks," pursuant to which MCI salespersons offer comprehensive
Web site services to their customers and potential customers in the northeastern
United States. In connection with Webworks, MCI co-markets the Company's
services and after pre-screening an interested customer, introduces that
customer to the Company. However, MCI has no obligation to refer projects to
the Company, is expected to refer Webworks projects to others, and utilizes the
services of certain of the Company's competitors, including CKS Group, Inc., for
other Web site projects. The Company believes that MCI also has an equity
interest in another unrelated provider of Web site services. The Company
is also aware that AT&T and UUNET Technologies, Inc., among others, have
introduced programs directly competing with Webworks. The termination of
either of the Company's relationships with MCI, and especially relating to
Webworks, a material reduction in the use of the Company's services by MCI
or the Company's inability to generate repeat business from MCI would have
a material adverse effect on the Company's business, financial condition
and operating results. See "Business -- Marketing -- Relationship with MCI."
ONE-TIME CUSTOMERS
Since substantially all of the Company's direct customers (and certain
Channel Sources) have retained the Company on a single project basis,
customers from whom the Company generated substantial revenue in one period
have not been a substantial source of revenue in a subsequent period.
During 1995, single customers accounted for approximately 18%, 15% and 12%
of the Company's revenues and during the first quarter of 1996 one customer
accounted for approximately 60% of the Company's revenues. Due to the
Company's limited operating history and the emerging nature of the
Internet, the Company generally cannot be sure whether its relationships with
customers will continue to be on a one project per customer basis, although it
does not anticipate ongoing revenues from the customers that accounted for 18%
and 12% of the Company's revenues during 1995. To the extent the Company does
not generate repeat or ongoing business from its customers, it will incur the
higher sales and marketing expenses associated with attracting new customers as
compared to those in attracting additional business from existing customers.
Moreover, the Company's inability to generate additional business from any
source upon completion of existing projects would also have a material adverse
effect on the Company's business, financial condition and operating results.
See "Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Business -- Customers."
CONFLICTS OF INTEREST; RESTRICTIONS
The Company has been precluded and may be precluded in the future from
pursuing opportunities that require it to provide services to direct
competitors of existing customers or Channel Sources. For example, the
non-binding letter of intent between the Company and the New Jersey Sports
and Exposition Authority (the "NJ Authority") for the design and creation
of the main Web site for the Meadowlands Sports Complex requires the
Company to act in good faith to remain exclusive to the NJ Authority and
events at its facilities and to notify the NJ Authority if the Company is
contacted by another sports or entertainment venue and act accordingly. In
addition, the Company risks alienating or straining relationships with
customers and Channel Sources each time the Company agrees to provide
services to even indirect competitors of existing customers or Channel
Sources. Conflicts of interest may jeopardize the stability of revenues
generated from existing customers and Channel Sources and preclude access
to business prospects, either of which could have a material adverse effect
on the Company's business, financial condition and operating results.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS, CASH REQUIREMENTS AND MARGINS
Quarterly revenues and operating results have fluctuated and will
fluctuate as a result of a variety of factors. These factors, some of
which have affected the Company and some of which are beyond the Company's
control, include the timing of the completion, material reduction or
cancellation of major projects, the loss of a major customer or the
termination of a relationship with a Channel Source, timing of the receipt
of new business, timing of the hiring or loss of personnel, changes in the
pricing strategies and business focus of the Company or its competitors,
capital expenditures, operating expenses and other
-6-
<PAGE>
costs relating to the expansion of operations, general economic conditions
and acceptance and use of the Internet. At the present time, the Company
has determined to increase expense levels, which to a large extent are
fixed, based in part on expectations as to future revenues. The Company
will base future expense levels similarly. Revenues and operating results
are difficult to forecast because of these fluctuations and because the
Company lacks historical financial data for a significant number of
periods. The Company may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall. Any significant
shortfall of demand for the Company's services in relation to the Company's
expectations would have an adverse impact on the Company's business,
operating results and financial condition.
The Company's quarterly operating margins may also fluctuate from
period to period depending on the relative mix of lower cost full time
employees versus higher cost independent contractors. Due to the Company's
lack of liquidity, the Company continues to rely more heavily on
independent contractors than it otherwise would (and expects to do so for
the foreseeable future), and to the extent it does so, the Company will
continue to incur these increased operating expenses.
PROJECT PROFIT EXPOSURE; RISK OF CANCELLATION
The Company has generated a substantial portion of its revenues
through project fees on a fixed fee for service basis. In 1995 and in the three
months ended March 31, 1996, approximately 34% and 10% of the Company's
revenues, respectively, were attributable to fixed price projects and the
remainder was attributable to time-and-material priced projects. In addition,
the Company's non-binding letter of intent with the NJ Authority provides that
the Company's fees for projects pursuant thereto will be paid from the proceeds
of advertising revenues generated by Web sites created for the NJ Authority. The
Company assumes greater financial risk on both fixed-price contracts and
contracts that are dependent upon advertising revenues to pay the Company's
fees than on either time-and-material or cost-reimbursable contracts. Failure
to anticipate technical problems, estimate costs accurately or control costs
during performance of a fixed-price contract, and failure to generate
advertising revenues in connection with contracts dependent thereon to pay the
Company's fees, which may be dependent upon the ability of the Company's
customer, may reduce the Company's profit or cause a loss. A material shift
away from the fixed-fee based projects to more time-and-materials projects,
however, could also have an adverse effect on the Company's operating profit
margin to the extent that fixed-fee based projects sometimes reflect a premium
over time-and-materials costs of those projects. Moreover, projects are
generally terminable at will by a customer and the Company could sustain
losses as a result of expenses incurred prior to termination.
UNCERTAIN ADOPTION OF INTERNET AS A MEDIUM OF COMMERCE AND COMMUNICATIONS;
DEPENDENCE ON INTERNET
Demand and market acceptance for recently introduced services and
products like those offered by the Company are subject to a high level of
uncertainty. The use of the Internet in marketing and advertising and
otherwise, particularly by those individuals and enterprises that have
historically relied
-7-
<PAGE>
upon traditional means of marketing and advertising, generally requires the
acceptance of a new way of conducting business and exchanging information.
Enterprises that have already invested substantial resources in other means
of conducting business and exchanging information may be particularly
reluctant or slow to adopt a new strategy that may make their existing
resources and infrastructure less useful. There can be no assurance that
the market for the Company's services will develop and if it fails to
develop, develops more slowly than expected or becomes saturated with
competitors, or if the Company's services do not achieve market acceptance,
the Company's business, operating results and financial condition will be
materially adversely affected.
The Company's ability to derive revenues will also depend upon a
robust industry and the infrastructure for providing Internet access and
carrying Internet traffic. The Internet may not prove to be a viable
commercial marketplace because of inadequate development of the necessary
infrastructure or timely development of complementary products, such as
high speed modems. Moreover, other critical issues concerning the
commercial use of the Internet (including security, reliability, cost, ease
of use and access, and quality of service) remain unresolved and may impact
the growth of Internet use. Because global commerce and online exchange
of information on the Internet and other similar open wide area networks
are new and evolving, it is difficult to predict with any assurance whether
the Internet will prove to be and remain a viable commercial marketplace.
If the infrastructure necessary to support the Internet's commercial
viability is not developed, or if the Internet does not become a viable
marketplace, the Company's business, operating results and financial
condition would be materially and adversely affected. See "Business --
Industry Overview."
RISK OF CHANGING TECHNOLOGY
The services the Company offers and the services and products the
Company expects to offer in the future, are impacted by rapidly changing
technology, evolving industry standards, emerging competition and frequent
new service, software and other product introductions. There can be no
assurance that the Company can successfully identify new business
opportunities and develop and bring new services or products to market in a
timely and cost-effective manner, or that services, products or
technologies developed by others will not render the Company's services or
products noncompetitive or obsolete. In addition, there can be no
assurance that services, products or enhancements introduced by the Company
will achieve or sustain market acceptance or be able to effectively address
compatibility, inoperability or other issues raised by technological
changes or new industry standards.
Required technological advances by the Company as the industry evolves
will likely include the ability to incorporate full-motion video, and the
integration of video, voice, data and graphics in Web sites. The Company's
pursuit of these technological advances will also likely require the
Company to seek assistance from third parties. There can be no assurance
that the Company will succeed in incorporating these features in Web sites.
See "Business -- Industry Overview."
INTELLECTUAL PROPERTY RIGHTS; RISK OF INFRINGEMENT; POSSIBLE LITIGATION
The Company believes that its success in its core business of Web site
design and creation is not dependent upon patents, copyrights or trademarks
and the Company does not currently have any registered patents, copyrights
or trademarks. Consequently, the Company relies solely on a combination of
common-law and statutory law to protect its proprietary information and
know-how. The Company also utilizes technology owned by third parties.
There can be no assurance that licenses for any technology developed by
third parties that might be required for the Company's services would be
available on reasonable terms, if at all.
Although the Company does not believe that its services infringe the
proprietary rights of any third parties, there can be no assurance that
third parties will not assert claims based on these services against the
Company in the future or that any of those claims would not be successful.
In addition, many of the Company's competitors rely upon trade secret law.
Litigation may be necessary in the future to
-8-
<PAGE>
enforce the Company's intellectual property rights and to protect its
proprietary information, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement
or invalidity. Litigation of this nature, whether or not successful, could
result in substantial costs and diversions of resources, either of which
could have a material adverse effect on the Company's business, financial
condition and operating results. Furthermore, parties making claims against
the Company could secure a judgment awarding substantial damages, as well
as injunctive or other equitable relief which could directly or indirectly
prohibit the Company from providing certain services and products. A
judgment of this nature could have a material adverse effect on the
Company's business, financial condition and results of operations.
RISK OF DEFECTS
Web site services and other services based on software and computing
systems often encounter development and completion delays and the
underlying software may contain undetected errors or failures when
introduced and, in the case of Web sites, when the volume of traffic on a
site increases. In addition, there can be no assurance that errors will
not be found in the software underlying a Web site, resulting in delays in
the completion of a Web site or other project, the commercial release of
particular services or products, and the market acceptance thereof, or
unanticipated costs to cure any defect if it is subject to cure, to refund
money paid to the Company or to pay for damages caused by the delay or
defect, any of which could have a material adverse effect on the Company's
business, financial condition and operating results, especially since the
Company lacks errors and omissions insurance and business interruption
insurance that might otherwise be available to mitigate such costs.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL; ABILITY TO
MANAGE GROWTH
The Company's success depends to a significant extent upon its senior
management, David J. Centner, Douglas E. Cleek, Bradley K. Szollose and
Matthew G. de Ganon and their ability to operate effectively, both
independently and as a group. None of the Company's senior management has
any prior executive management experience. The Company has no employment
agreements with any of these individuals but is expected to enter into
employment agreements with each of them prior to the consummation of this
offering. The loss of any of these members of senior management could have
a material adverse effect upon the Company's business, financial condition
and operating results. Although the employment agreements will contain
non-compete and non-disclosure provisions, the Company's ability to benefit
from them is uncertain since such provisions typically must be limited in
geographic scope to be enforceable. Restrictions limited in geographic
scope may not effectively prohibit competition with the Company because of
the global nature of the Internet. The Company does not currently carry key
person life insurance on its executive management personnel, but intends to
insure the lives of David J. Centner and Matthew G. de Ganon for $1,000,000 each
upon consummation of this offering. The Company generally lacks employment
agreements with the rest of its employees. If one or more of the Company's
employees resigns from the Company to join a competitor or to form a
competing company, any resulting loss of existing or potential customers or
other unauthorized disclosure or use of the Company's proprietary
information, technical knowledge, practices, procedures or customer lists
could also have a material adverse effect on the Company's business,
financial condition and operating results.
The Company believes that its future success will depend in large part
upon its ability to attract and retain additional highly skilled creative,
technical, financial and strategic marketing personnel. Competition for
such personnel, especially creative talent, is intense. The Company hired
a Controller in April 1996, and intends to identify and hire a Chief
Financial Officer after the consummation of this offering. There can be no
assurance the Company will be successful in attracting and retaining such
personnel, and the failure to do so could have a direct and immediate
material adverse effect on the Company's business, financial condition and
operating results. See "Management."
Since the Company shifted its primary business focus to Web site
design and creation, there has been substantial growth in the number of
employees and in increased (i) responsibility for both existing and new
management personnel, (ii) strain on the Company's existing management,
administrative, operational, financial and technical resources and
(iii) demands on its management information systems and controls.
There can be no assurance that the Company will effectively develop and
-9-
<PAGE>
implement systems, procedures or controls adequate to support the Company's
operations or that management will be able to achieve the rapid execution
necessary to fully exploit the opportunity for the Company's services. To
manage its business and any growth, the Company must continue to implement
and improve its operational and financial systems and continue to expand,
train and manage its employees. In particular, management believes that
the Company will need to hire additional qualified administrative and
management personnel in the accounting and finance areas to establish and
manage financial control systems. If the Company is unable to manage its
business effectively, the Company's business, operating results and
financial condition will be materially adversely affected.
COMPETITION; NO SUBSTANTIAL BARRIERS TO ENTRY; PRICE EROSION
The markets for the Company's services are highly competitive and are
characterized by pressures to reduce prices, incorporate new capabilities
and accelerate completion schedules. The Company expects competition for
its services to intensify in the future, partly because there are no
substantial barriers to entry into the Company's business. There can be no
assurance that the Company will be able to offset the effects of any
resulting price reductions with an increase in the number of its customers
or projects, higher revenue from enhanced services or products, cost
reductions or otherwise and its failure to do so could have a material
adverse effect on its business, financial condition and operating results.
The Company faces competition from a number of sources, including
potential customers that perform Web site development services in-house.
These sources also include other Web site service boutique firms,
communications, telephone and telecommunications companies such as
Telecommunications Inc., computer hardware and software companies such as
Microsoft Corporation and Adobe Systems Incorporated, established online
services companies, advertising agencies, direct access Internet and
Internet-services and access providers as well as specialized and
integrated marketing communication firms such as CKS Group, Inc. and Eagle
River Interactive, Inc., all of which are entering the Web site design and
creation market in varying degrees and are competing with the Company, and
many of which have announced plans to offer expanded Web site design and
creation services. Many of the Company's competitors or potential
competitors have longer operating histories, longer customer relationships
and significantly greater financial, management, technological,
development, sales, marketing and other resources than the Company. The
Company's ability to retain relationships with Channel Sources and its
customers and generate new customers and Channel Sources depends to a
significant degree on the quality of its services and its reputation, as
compared with the quality of services provided by and the reputations of the
Company's competitors. The Company also competes on the basis of creative
talent, price, reliability of services and responsiveness. There can be no
assurance that the Company will be able to compete and its inability to do so
would have a material adverse impact on the Company's business, financial
condition and operating results. See "Business -- Competition."
GOVERNMENT REGULATION, LEGAL UNCERTAINTIES AND REGULATORY POLICY RISKS
The Company is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses
generally, and there are currently few laws or regulations directly
applicable to Web site service companies. However, due to the increasing
media attention focused on the Internet, it is possible that a number of
laws and regulations may be adopted with respect to the Internet, covering
issues such as user privacy, and pricing and characteristics and quality of
products and services. The adoption of any such laws or regulations may
decrease the growth of the Internet, which could in turn decrease the
demand for the Company's services and products and increase the Company's
cost of doing business or cause the Company to modify its operations, or
otherwise have an adverse effect on the Company's business, operating
results and financial condition. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership,
libel and personal privacy is uncertain. The Company cannot predict the
impact, if any, that future regulation or regulatory changes may have on
its business. In addition, Web site developers such as the Company face
potential liability for the actions of customers and others using their
services, including liability for infringement of
-10-
<PAGE>
intellectual property rights, rights of publicity, defamation, libel and
criminal activity under the laws of the U.S. and foreign jurisdictions.
Moreover, the Company lacks errors and omissions insurance. Any imposition
of liability could have a material adverse effect on the Company.
The Communications Decency Act of 1996 (the "1996 Act"), which became
effective on February 8, 1996, imposes criminal liability on persons sending
or displaying in a manner available to minors indecent material on an
interactive computer service such as the Internet. The 1996 Act also imposes
criminal liability on an entity knowingly permitting facilities under its
control to be used for those activities. The penalties imposed by the 1996 Act
include fines and imprisonment. Although the Third Circuit Court of
Appeals recently preliminarily enjoined the enforcement of portions of the 1996
Act, that ruling is expected to result in a trial or an expedited appeal to the
United States Supreme Court. If upheld, the interpretation and enforcement
of these provisions are uncertain. This legislation may decrease demand for
Internet access, chill the development of Internet content, or have other
adverse effects on Web site service providers such as the Company. In addition,
in light of the uncertainty of the interpretation and application of this law,
there can be no assurance that the Company would not have to modify its
operations to comply with the statute. The impact of the 1996 Act on the
Company and its business cannot be predicted. See "Business -- Government
Regulation."
NO ASSURANCE OF PUBLIC MARKET; ARBITRARILY DETERMINED OFFERING PRICE
Prior to this offering, there has been no market for the Common Stock
or the Warrants. Consequently, the offering prices of the Common
Stock and Warrants have been determined arbitrarily by negotiations between
the Company and the Representative and are not necessarily related to the
Company's asset value, net worth or other established criteria of value.
There can be no assurance that a regular trading market will develop or that
if developed, will be sustained. In the absence of a trading market, an
investor may be unable to liquidate its investment. See "Underwriting."
NO DIVIDENDS
The Company does not intend to declare any dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."
VOTING AGREEMENT, AUTHORIZATION OF PREFERRED STOCK AND OTHER ANTI-TAKEOVER
DEVICES
Following the sale of the securities offered hereby, the directors and
executive officers of the Company will own approximately 54% of the
Company's outstanding Common Stock. As a result of a 10-year Voting
Agreement to be entered into by Messrs. Centner, de Ganon, Cleek and
Szollose upon the consummation of the offering, Matthew de Ganon will
have voting control over all of these shares, except that these shares will
be required to be voted in favor of the election as directors of Messrs.
Centner, de Ganon, Cleek and Szollose. Consequently, Mr. de Ganon will be
in a position to control all other matters requiring approval by the
stockholders of the Company, including the approval of significant
corporate matters, such as a merger, consolidation or sale of all or
substantially all of the Company's business or assets. In addition, the
Voting Agreement will grant each party thereto a right of first refusal as
to the sale of the others' Common Stock. See "Management -- Voting
Agreement."
The Board of Directors is also authorized to issue shares of preferred
stock and to fix the relative voting, dividend, liquidation, conversion,
redemption and other rights, preferences and limitations thereof without
any further vote or action of the stockholders. The issuance of preferred
stock could adversely affect the voting power or other rights of the
holders of Common Stock. In the event of issuance, the preferred stock
could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change of control of the Company.
Although the Company has no present intention to issue any preferred stock,
there can be no assurance that the Company will not do so in the future.
The Company's certificate of incorporation and by-laws contain other
provisions that may discourage, delay or prevent a change of control of the
Company that a stockholder might consider to be in the
-11-
<PAGE>
stockholder's best interest, including those that might result in a premium
over the market price for the Company's securities should a market develop.
See "Description of Securities."
MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Common
Stock offered hereby for working capital and for general corporate purposes.
The Company, however, has not specifically allocated the use for these proceeds.
Accordingly, the Company's management will have broad discretion with respect
to the use of these proceeds and there can be no assurance that they can or will
be invested to yield a significant return. See "Use of Proceeds."
IMMEDIATE SUBSTANTIAL DILUTION
Upon completion of this offering, there will be an immediate and
substantial dilution of the net tangible book value of the Company from the
public offering price of the Common Stock. As of March 31, 1996, the Company
had a pro forma net tangible book value (as adjusted to reflect the sale of
Common Stock in a private placement subsequent thereto and the net proceeds
therefrom) of $688,622. After giving effect to the receipt of the net proceeds
from this offering, the pro forma as adjusted net tangible book value as of
March 31, 1996 would have been $6,278,622. As a result, the public investors
will suffer an immediate dilution of $5.20 per share which represents
approximately 74% of the initial public offering price of the Common Stock.
The foregoing calculations do not ascribe any value to the Warrants. See
"Dilution."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants will be redeemable in whole or in part at the Company's
option at a price of $.05 per Warrant upon not less than 30 days' written
notice if the closing price of the Common Stock has been equal to or
greater than 140% of the then exercise price of the Warrants for 20
consecutive trading days ending on the fifth day prior to the notice of
redemption. Holders' rights to exercise the Warrants will terminate on the
redemption date thereof, depriving holders of any value except the right to
receive the redemption price of the Warrants. Notice of redemption of the
Warrants could force the holders to exercise the Warrants and to pay the
exercise price at a time when it may be disadvantageous to do so, to sell
the Warrants at the current market price when they might otherwise wish to
hold the Warrants, or to accept the redemption price which is likely to be
substantially less than the market value of the Warrants at the time of the
redemption. See "Description of Securities -- Warrants."
SHARES ELIGIBLE FOR FUTURE SALE
All of the 2,495,482 shares of Common Stock outstanding as of the date
of this Prospectus are "restricted securities," as that term is defined
under Rule 144 promulgated under the Securities Act. Of those shares, an
aggregate of 947,740 shares owned by Messrs. Cleek and Szollose have been held
for the minimum two year period required by Rule 144 and will be eligible for
public sale pursuant to Rule 144 90 days after the date of this Prospectus. The
two-year holding period will expire with respect to 473,870 shares owned by
Mr. Centner and 473,870 shares owned by Mr. de Ganon in January 1997 and July
1997, respectively. Messrs. Centner, Cleek, Szollose and de Ganon have agreed,
however, not to sell any of their shares of Common Stock until , 1998
(24 months from the date hereof) without the Representative's prior written
consent. The remaining 600,002 shares are included in the Registration
Statement of which this Prospectus is a part but the holders thereof have agreed
not to sell these shares within six months of the date of this Prospectus
without the Representative's prior written consent. The Company has also agreed
to sell to the Representative and its designees warrants to purchase up to
100,000 shares of Common Stock and 100,000 Warrants and to register them under
the Securities Act, together with the Common Stock underlying those Warrants. No
prediction can be made as to the effect, if any, that sales of such Common
Stock or its availability for sale will have on the market prices prevailing
from time to time of the securities offered hereby or on the Company's ability
to raise capital. See "Selling Stockholders and Plan of Distribution," "Shares
Eligible for Future Sale" and "Underwriting."
RESTRICTIONS ON EXERCISE OF THE WARRANTS
The sale by the Company of Common Stock on any exercise of the
Warrants must be registered, or exempt from registration, under applicable
federal and state securities laws. The Warrants will not be exercisable if
any required registration or exemption has not been obtained. The Company
may decide
-12-
<PAGE>
not to seek or may not be able to obtain qualification of the issuance of
such Common Stock in all of the states in which the holders of the Warrants
reside. In such a case, the Warrants held by such holders will expire and
have no value if such Warrants cannot be sold. In addition, Warrants will
not be exercisable at any time during which the Company does not have a
current prospectus relating thereto effective under the Securities Act. The
maintenance of a current prospectus could result in substantial expense to
the Company, and there can be no assurance that the Company will be able to
maintain a current effective prospectus. The Warrants may be deprived of
any value if the current prospectus covering the shares underlying the
Warrants is not kept effective or if such underlying shares are not or
cannot be registered in the applicable states. See "Description of
Securities -- Warrants."
BROKER-DEALER SALES OF SECURITIES OF THE COMPANY
The National Association of Securities Dealers, Inc. (the "NASD"),
which administers The Nasdaq SmallCap(TM) Market, requires that in order
to continue to be included in The Nasdaq SmallCap(TM) Market, a company
must maintain $2 million in total assets, a $200,000 market value of the
public float and $1 million in total capital and surplus. In addition,
continued inclusion requires, among other things, two market-makers and a
minimum bid price of $1.00 per share; provided, however, that if a company
falls below such minimum bid price, it will remain eligible for continued
inclusion if the market value of the public float is at least $1 million
and the Company has $2 million in capital and surplus. The Boston Stock
Exchange also has standards that must be maintained for continued listing.
The failure to meet these maintenance criteria in the future may result in
the discontinuance of the inclusion of the Common Stock and the Warrants
in The Nasdaq SmallCap(TM) Market or the delisting of them from the
Boston Stock Exchange. In such event, trading, if any, in the Common Stock
and the Warrants may then continue to be conducted in the non-Nasdaq over-the-
counter market in what is commonly referred to as the "bulletin board." As a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Common Stock and the
Warrants.
In the event that securities issued by the Company cease to be
included in The Nasdaq SmallCap(TM) Market or listed on the Boston Stock
Exchange, sales of such securities will be within the scope of a Securities
and Exchange Commission rule that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other
than their established customers and institutional accredited investors.
For transactions covered by the rule, the broker-dealer must make a special
suitability determination for the purchaser and receive the purchaser's
written agreement to the transaction prior to the sale. Consequently, the
rule may affect the ability of broker-dealers to sell the Company's
securities and also may affect the ability of purchasers in this offering
to sell their securities in a secondary market, if such market were to
develop.
-13-
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the securities offered
hereby are estimated to be $5,590,000, after deducting underwriting
discounts and offering expenses, assuming initial public offering prices
of $6.95 per share of Common Stock and $.05 per Warrant. The principal purposes
of this offering are to increase the Company's working capital, capitalization
and financial flexiblity, to provide a public market for the Company's
securities and to facilitate future access to public capital markets. The
Company currently expects to use the net proceeds for working capital and
general corporate purposes and only in connection with the business as
described in this Prospectus, including to (i) increase the Company's sales,
marketing, production and programming staff, (ii) pay for increased occupancy
costs as a result of its recent move, (iii) open a new sales office in Germany
and (iv) finance research and development activities. The Company may also use
a portion of the net proceeds to acquire products or companies that complement
the Company's business. While the Company from time to time may evaluate
potential acquisitions, no such transactions are presently contemplated.
The foregoing represents the Company's best estimate of its use of the
net proceeds of this offering, based upon present planning, industry,
economic and business conditions, and the Company's estimated future
revenues and expenditures. The Company may change its use of proceeds in
response to unanticipated events such as increased expenses, growth or
competition or new attractive opportunities, which may cause the Company to
redirect its priorities and to reallocate a portion of the proceeds or use
portions thereof for other purposes, or to seek additional debt or equity
financing or curtail its business activities. See "Risk Factors --
Fluctuations in Quarterly Operating Results, Cash Requirements and
Margins."
The Company anticipates that the net proceeds of this offering
together with available funds and cash expected to be generated by
operations will be adequate to fund the Company's currently proposed
activities for at least one year. Pending application of the net proceeds
of this offering as described above, the Company intends to invest those
proceeds in short-term, investment grade, interest-bearing instruments.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
-14-
<PAGE>
DILUTION
The difference between the price per share of Common Stock offered hereby
and the adjusted net tangible book value per share of Common Stock after this
offering constitutes the dilution to investors in this offering. Net tangible
book value per share is determined by dividing the net tangible book value
(total assets less intangible assets and total liabilities) by the number of
outstanding shares of Common Stock. The following discussion and tables
allocate no value to the Warrants and the Common Stock issuable upon exercise
thereof.
At March 31, 1996, the Company had a pro forma net tangible book value
of $688,622 or $.28 per share of Common Stock, after giving effect to the
receipt of net proceeds totalling approximately $620,000 subsequent thereto
from the sale of securities in a private placement. After giving effect to
the sale of the securities offered hereby at an assumed offering price of $7.00
per share (less underwriting discounts and estimated expenses of this
offering) and allocating no value to the Warrants, the as adjusted pro forma
net tangible book value of the Company at March 31, 1996 would have been
$6,278,622 or $1.80 per share of Common Stock, representing an immediate
increase in net tangible book value of $1.52 per share to existing stockholders
and an immediate dilution of $5.20 per share to new investors or 74%. See
"Certain Transactions -- Private Placements."
The following table indicates the per share dilution to be incurred by
the investors in this offering.
Assumed public offering price per share . . . . . . . . . . . $7.00
Pro forma net tangible book value per share at
March 31, 1996 . . . . . . . . . . . . . . . . . . . . . .28
Increase per share attributable to new investors. . . . . 1.52
----
As adjusted pro forma net tangible book value per share
after giving effect to this offering . . . . . . . . . . . 1.80
-----
Dilution in net tangible book value per share to new
investors . . . . . . . . . . . . . . . . . . . . . . . . . $5.20
=====
If the Representative's over-allotment option is exercised in full, the
increase per share attributable to new investors, the as adjusted pro forma
net tangible book value per share and the dilution in net tangible book
value per share to new investors would be $1.69, $1.97 and $5.03,
respectively.
-15-
<PAGE>
The following table summarizes the number and percentage of shares of
Common Stock purchased from the Company, the amount and percentage of the
consideration paid, and the average price per share paid by existing
stockholders and by new investors pursuant to this offering.
<TABLE><CAPTION>
Shares Purchased Consideration Paid(1) Average
-------------------- ----------------------- Price Per
Number Percent Amount Percent Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders . . . . . . 2,495,482 71.4% $ 985,000 12.3% $0.39
New Investors . . . . . . . . . . . 1,000,000 28.6% $7,000,000 87.7% $7.00
--------- ----- ---------- ----
Total . . . . . . . . . . . . 3,495,482 100.0% $7,985,000 100.0%
========= ===== ========== =====
</TABLE>
- -------------------------------------
(1) Excludes non-cash consideration consisting of the contribution of all
of the partnership interests in the general partnership predecessor
of the Company and includes $25,000 of non-cash consideration
consisting of the contribution of a loan due from the Company. See
"Certain Transactions -- Formation and Financing of the Company."
In addition, holders of the Warrants may incur additional dilution on
the exercise thereof.
-16-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company
(a) as of March 31, 1996, (b) as of March 31, 1996, pro forma to give
effect to the receipt of net proceeds of approximately $620,000 from the
sale of 400,002 shares of Common Stock in a private placement in May 1996,
and (c) pro forma as of March 31, 1996 as adjusted to reflect the sale of
the securities offered hereby and the application of the estimated net proceeds
therefrom. This information should be read in conjunction with the
Company's historical financial statements and related notes appearing
elsewhere in this Prospectus.
<TABLE><CAPTION>
March 31, 1996
------------------------------------------------------------
Actual Pro Forma As Adjusted
------------ ---------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Current portion of long-term debt $55,708 $55,708 $55,708
Long-term debt, net of current
portion 46,382 46,382 46,382
-------- ------- --------
Total debt 102,090 102,090 102,090
------- ------- -------
Stockholders' equity:
Preferred stock, $.01 par
value per share; 1,000,000
shares authorized; no shares
issued and outstanding 0 0 0
Common stock, $.01 par
value per share, 9,000,000
shares authorized;
2,095,480 shares issued and
outstanding; 2,495,482
shares issued and
outstanding, pro forma; and
3,495,482 shares issued and
outstanding, as adjusted 20,955 24,955 34,955
Additional paid-in capital 170,995 786,395 6,366,395
Retained earnings (deficit) (122,728) (122,728) (122,728)
--------- --------- ----------
Total stockholders' equity 69,222 688,622 6,278,622
--------- --------- ---------
Total Capitalization $171,312 $ 790,712 $ 6,380,712
======== ======== ==========
</TABLE>
-17-
<PAGE>
DIVIDEND POLICY
The Company does not expect to pay dividends in the foreseeable future
as any earnings are expected to be retained to finance the Company's
growth. Declaration of dividends in the future will remain within the
discretion of the Company's Board of Directors, which will review its
dividend policy from time to time.
-18-
<PAGE>
SELECTED FINANCIAL DATA
The following financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included in this
Prospectus. The data insofar as it relates to each of the years 1994 and
1995 have been derived from audited financial statements and notes thereto
appearing elsewhere herein. The data for the three months ended March 31,
1995 and 1996 have been derived from unaudited financial statements which,
in the opinion of management, include all adjustments, consisting of only
normally recurring adjustments, necessary for a fair statement of the
results for unaudited interim periods. The Company was founded in 1993 and
entered into its first Web site design and creation transaction with a
customer in 1994. Accordingly, and recognizing that the Company has
engaged in its current primary line of business only for approximately two
years, the Company has a limited operating history upon which an evaluation
of the Company and its prospects can be based. Management therefore
believes that period-to-period comparisons of the Company's results of
operations are not indicative of future results. In addition, operating
results for the three months for the ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
<TABLE><CAPTION>
Three Months
Ended
Fiscal Year Ended March 31,
December 31, (Unaudited)
------------------------------ -----------------------------
1994 1995 1995 1996
---------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues $249,379 $1,196,208 $ 33,639 $ 512,434
Direct Salaries and Costs 215,865 957,027 68,152 499,109
------- --------- ------- ---------
Gross Profit (Loss) 33,514 239,181 (34,513) 13,325
Selling, General and
Administrative Expenses 73,601 200,931 12,449 125,958
Depreciation 13,013 24,485 4,779 9,113
-------- --------- -------- ----------
Income (loss) from operations (53,100) 13,765 (51,741) (121,746)
Interest expense, net -- 869 319 982
---------- ---------- -------- ----------
Income (loss) before provision
for income taxes (53,100) 12,896 (52,060) (122,728)
Pro Forma income tax expense (1) - 0 0 0
--------- ----------- --------- -----------
Pro Forma net income (loss) (1) $(53,100) $ 12,896 $(52,060) $ (122,728)
======== ========== ======== ==========
Pro Forma net income (loss) per
equivalent common share (1) $ .01 $ (.06)
=========== ============
Common Stock and equivalent
common stock outstanding 1,946,373 2,013,040
=========== =========
March 31, 1996
(Unaudited)
-----------------------------------------------------
Actual Pro Forma(2) As Adjusted(3)
------------ ---------------- -----------------
Working Capital (deficit) . . . . . . . . . . . $(23,472) $ 595,928 $6,185,928
Total assets . . . . . . . . . . . . . . . . . $559,174 $1,178,574 $6,768,574
Stockholders' equity . . . . . . . . . . . . . $ 69,222 $ 688,622 $6,278,622
</TABLE>
________________________
(1) For the period from inception, March 1, 1993, through December 31, 1994,
the Company operated as a partnership. Effective January 1995 the
Company elected to be taxed as an S Corporation under the provisions
of the Internal Revenue Code of 1986. Effective January 1996, the
Company's S Corporation election was voluntarily revoked, subjecting
the Company to corporate income taxes subsequent to that date. Pro
forma income tax expense, pro forma net income (loss) and pro forma
net income (loss) per equivalent common share represent the Company's
income tax position had the Company been a C Corporation for all
periods presented.
(2) Adjusted to reflect the sale of 400,002 shares of Common Stock in a
private placement subsequent to March 31, 1996.
(3) As further adjusted to reflect the sale of 1,000,000 shares of Common
Stock and 1,000,000 Warrants offered by the Company hereby and the
application of the estimated net proceeds therefrom, assuming initial
public offering prices of $6.95 per share and $.05 per Warrant.
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following presentation of management's discussion and analysis of
the Company's financial condition and results of operations should be read
in conjunction with the Company's Consolidated Financial Statements, the
accompanying notes thereto and other financial information appearing
elsewhere in this Prospectus.
OVERVIEW
The Company was founded in 1993 as a general partnership and initially
operated a traditional graphic design business. The Company was hired
to design a graphical user interface in March 1994 for Sierra Magazine
Online, a proprietary online service, and in August 1994 for NetMarket Inc., the
first company to perform a secure online transaction on the Internet, at
which time the Company shifted its principal business to Web site design
and creation. In January 1995, the Company was reorganized as a New York
corporation that elected to be treated as an S corporation for tax
purposes. In January 1996 the Company was reorganized as a Delaware
holding company and the New York corporation became a wholly-owned
operating subsidiary thereof and thus ceased to be an S corporation for tax
purposes. For financial reporting purposes, the Company's Consolidated
Financial Statements include the Company and its wholly-owned subsidiary.
Since the Company has engaged in its current primary line of business
only for approximately two years, the Company has a limited operating
history upon which an evaluation of the Company and its prospects can be
based. Management therefore believes that period-to-period comparisons of
the Company's results of operations are not indicative of future results.
In addition, operating results for the three months ended March 31, 1996
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. See "Risk Factors -- Recent Operating
Losses; Limited Operating History; Early Stage of Development" and "Risk
Factors -- Fluctuations in Quarterly Operating Results, Cash Requirements
and Margins."
RESULTS OF OPERATIONS
General
Web site design and creation projects for which the Company has been
engaged have generally been completed within six to eight weeks, although
certain past, current and future projects have taken and are expected to
take longer to complete. Revenues are recognized on the completed contract
method on an individual project basis. Provisions for any estimated losses
on uncompleted projects are made in the period in which such losses are
determinable. A substantial portion of the Company's revenues have been
generated on a fixed fee for service basis. See "Risk Factors -- Project
Profit Exposure; Risk of Cancellation."
The Company has increased and is currently increasing its expense
levels to accommodate its past growth and anticipated growth in its business,
including substantially increasing the number of employees, relocating its
offices and investing in equipment. The Company's failure to expand its
business in an efficient manner could have a material adverse effect on the
Company's business, operating results and financial condition. In
addition, there can be no assurance that the Company's revenues will
continue to grow at a rate that will support its increasing expense levels.
See "Risk Factors -- Uncertain Adoption of Internet as a Medium of
Commerce and Communications; Dependence on Internet," "Risk Factors -- Risk
of Changing Technology," "Risk Factors -- Evolving Marketing Strategy,"
"Risk Factors -- Conflicts of Interest; Restrictions," "Risk Factors -- One-Time
Customers" and "Risk Factors -- Relationship with MCI" for a discussion of other
uncertainties that may adversely affect the Company's business, operating
results and financial condition.
-20-
<PAGE>
The Company has also generated a significant portion of its revenues
through project fees on a fixed fee for service basis. In 1995 and in the three
months ended March 31, 1996, approximately 34% and 10% of the Company's
revenues, respectively, were attributable to fixed price projects and the
remainder was attributable to time-and-material priced projects.
In addition, the Company's non-binding letter of intent with the New Jersey
Sports and Exposition Authority (the "NJ Authority") provides that the
Company's fees for projects pursuant thereto will be paid from the proceeds of
advertising revenues generated by Web sites created for the NJ Authority. The
Company assumes greater financial risk both on fixed-price contracts and
contracts dependent upon advertising revenues to pay the Company's fees than on
either time-and-material or cost-reimbursable contracts. Failure to
anticipate technical problems, estimate costs accurately or control costs
during performance of a fixed-price contract, and failure to generate
advertising revenues in connection with contracts dependent thereon to pay
the Company's fees, which may be dependent upon the ability of the
Company's customer, may reduce the Company's profit or cause a loss. A
material shift away from the fixed-fee based projects to more
time-and-materials projects, however, could also have an adverse effect on
the Company's operating profit margin to the extent that fixed-fee based
projects sometimes reflect a premium over time-and-materials costs of those
projects. See "Risk Factors -- Project Profit Exposure; Risk of Cancellation."
The changes in the various line-items discussed below result from the
increase in the Company's revenues since it shifted its principal business to
Web site design and creation and the attendant increases in expenses.
Revenues
Revenues for the years ended December 31, 1995 and 1994 were
$1,196,208 and $249,379, respectively, and revenues for the three months
ended March 31, 1996 (the "1996 Quarter") and March 31, 1995 (the "1995
Quarter") were $512,434 and $33,639, respectively. In fiscal 1994 and in
the 1995 Quarter, substantially all of the Company's revenues were
generated by traditional graphic design services. The Company did not
generate a significant portion of its revenue from its Web site services
until later in fiscal 1995, during which year approximately 80% of revenues
were generated from Web site design and creation services. During the 1996
Quarter substantially all of the Company's revenues were generated from Web
site design and creation services. The Company expects that the ratio of
revenues derived from Web site services as compared to revenues derived
from traditional graphic design services will continue to increase, since
the Company expects to continue to focus its resources on promoting its Web
site services and to limit its traditional graphic design services to those
provided in conjunction with Web site services.
In addition, the Company expects that its revenues and its gross profit
margins in the quarter ending June 30, 1996 will be comparable to those in the
1996 Quarter and that it will incur a loss in the June 30 quarter substantially
higher than that in the 1996 Quarter. The increased loss on flat revenues is
expected primarily because (i) the Company's executive management devoted
substantially more time to sales and marketing in the 1996 Quarter as compared
to the June 30 quarter as a result of the demands on their time relating to this
offering in the June 30 quarter and (ii) the Company continued to incur
increased expenses related to new personnel, the relocation of its offices and
research and development in the June 30 quarter.
Direct Salaries and Costs
Direct salaries and costs include all direct labor costs and other
direct costs related to project performance, such as independent
contractors, freelance labor, supplies, and printing and equipment costs.
The Company's direct salaries and costs for the year ended December 31,
1995 were $957,027, and consisted primarily of approximately $405,000 paid
to freelance artists and other independent contractors (approximately half
of which was paid to a vendor of complex computer programming services
required for special features on Web sites), and secondarily of
approximately $300,000 paid as direct salaries. The Company's direct salaries
and costs for the year ended December 31, 1994 were $215,865 and consisted
primarily of approximately $110,000 of printing and film processing costs and
of approximately $80,000 paid as direct salaries.
The Company's direct salaries and costs for the 1996 Quarter were
$499,109 and consisted primarily of approximately $260,000 paid to
freelance artists and other independent contractors (approximately $150,000
of which was paid to a vendor of complex computer programming services) and
approximately $210,000 paid as direct salaries. During the 1996 Quarter, the
Company hired three full-time computer programmers skilled in various computer
operating systems, tools and languages, who are responsible for periodically
assessing new technologies and to provide complex computer programming for
special features on Web sites. The Company expects that it will hire additional
programmers in anticipation of future projects and will consequently incur
increased direct costs in both (i) absolute dollars and (ii) as a percentage of
revenues, until such time, if ever, that revenues increase. In the 1995 Quarter,
the Company's direct salaries and costs were $68,152 and consisted of payments
for complex computer programming services, freelance artists and other
outside labor, printing and film processing costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended
December 31, 1995 were approximately $201,000 and primarily consisted of
professional fees, occupancy costs, travel, office expenses and supplies
and marketing and advertising, among other things. Selling, general and
administrative expenses for the year ended December 31, 1994 were
approximately $74,000 and primarily consisted of occupancy costs, office
expenses and supplies and travel. Selling, general and administrative
expenses for the 1996 Quarter were $125,958 and primarily consisted of the
same types of expenses as those incurred during fiscal 1995. During the
1995 Quarter, selling, general and administrative expenses were $12,449 and
primarily consisted of professional fees, occupancy costs and office expenses.
In addition, the Company expects to open additional sales offices,
including one in Germany. As a result of any such expansion, the Company's
selling, general and administrative expenses, particularly occupancy costs and
office expenses and supplies, are expected to increase.
-21-
<PAGE>
Depreciation
Depreciation expense was $24,485 and $13,013 in the years ended
December 31, 1995 and 1994, respectively, and $9,113 and $4,779 in the
1996 Quarter and the 1995 Quarter respectively, and related to depreciation
of equipment and leasehold improvements. The Company expects that
depreciation expense in 1996 will increase significantly as a result of
depreciation of the Company's equipment and leasehold improvements
anticipated in connection with the relocation of its offices. See
"Business -- Properties."
Income Taxes
The Company operated as a partnership during the year ended December
31, 1994. As a result, the partners were individually liable for federal
and state income taxes on the Company's taxable income. Effective January
1995, the Company elected to be treated as an S Corporation for federal
income tax purposes. As a result, the shareholders were individually
liable for federal income tax on the Company's taxable income. In January
1996, the Company began to be treated as a C corporation for federal and
state income tax purposes. The Company is also liable for New York state
and city income taxes. See "Certain Transactions -- Formation and Financing
of the Company."
SELECTED QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table presents unaudited quarterly financial information
for the period from January 1, 1995 to March 31, 1996. The information has
been derived from the Company's unaudited Consolidated Financial
Statements. The unaudited quarterly financial information has been
prepared on the same basis as the audited Consolidated Financial Statements
and include all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for a fair presentation
of such information when read in conjunction with the Company's audited
Consolidated Financial Statements and the accompanying notes thereto appearing
elsewhere in this document. These results are not indicative of results for any
future period. See "Risk Factors -- Fluctuations in Quarterly Operating
Results, Cash Requirements and Margins."
<TABLE><CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER DECEMBER MARCH 31,
1995 1995 30,1995 31,1995 1996
----------- -------------- ---------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . $33,639 $383,423 $301,481 $477,665 $512,434
------- -------- -------- -------- --------
Operating Expenses:
Direct salaries
and costs . . . . . 68,152 274,309 268,074 346,492 499,109
Selling, general and
administrative
expenses . . . . . . 12,449 72,294 53,090 63,098 125,958
Depreciation . . . . 4,779 10,147 4,779 4,780 9,113
-------- --------- --------- --------- ----------
Total operating
expenses . . . . . . . 85,380 356,750 325,943 414,370 634,180
-------- -------- -------- -------- ---------
Operating income
(loss) . . . . . . . . $(51,741) $ 26,673 $ (24,462) $ 63,295 $(121,746)
========= ======== ========== ======== ==========
</TABLE>
Quarterly revenues and operating results have fluctuated and will
fluctuate as a result of a variety of factors. These factors, some of
which have affected the Company and some of which are beyond the Company's
control, include the timing of the completion, material reduction or
cancellation of major projects, the loss of a major customer or the
termination of a relationship with a Channel Source, timing of the receipt
of new business, timing of the hiring or loss of personnel, changes in the
pricing strategies and business focus of the Company or its competitors,
capital expenditures, operating expenses and other costs relating to the
expansion of operations, general economic conditions and acceptance and use
of the Internet. At the present time, the Company has determined to
increase expense levels, which to a large extent are fixed, based in part
on expectations as to future revenues and will base future expense levels
similarly. As a result, operating expenses as a percentage of revenues have
increased in the 1996 Quarter as compared to the prior three quarters.
Revenues and operating results are difficult to forecast because of these
fluctuations and because the Company lacks historical financial data for a
significant number of periods. The Company may be unable to adjust spending
in a timely manner to compensate for any unexpected revenue shortfall.
-22-
<PAGE>
Any significant shortfall of demand for the Company's services in relation
to the Company's expectations would have an adverse impact on the Company's
business, operating results and financial condition.
The Company's quarterly operating margins may also fluctuate from
period to period depending on the relative mix of lower cost full time
employees versus higher cost independent contractors. Due to the Company's
lack of liquidity, the Company continues to rely more heavily on
independent contractors than it otherwise would (and expects to do so for
the foreseeable future), and to the extent it does so, the Company will
continue to incur these increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current primary focus is on increasing its Web site
business and the Company continues to hire additional personnel and to
increase expenses related to administration, production, technical
resources, marketing, customer support and infrastructure to enhance and
expand its operations. In addition, the Company had an operating cash flow
deficit of $(2,404) in 1995 and of $(172,575) in the 1996 Quarter, which
hampered the Company's ability to expand. The Company is dependent on the
successful completion of this offering for working capital in order to be
competitive, to meet the increasing demands for service, quality and pricing
and for any expansion of its business. While the Company believes the proceeds
of this offering together with cash expected to be generated by operations will
be sufficient to finance its operations for at least one year, the Company may
nevertheless require substantial alternative financing in order to satisfy
its working capital needs, which may be unavailable or prohibitively
expensive since the Company's only assets available to secure additional
financing are accounts receivable. Accordingly, the Company may not have
the funds to relieve its liquidity problems in the one year after this offering
and thereafter, or to finance any expansion of its business.
Net cash used in the Company's operating activities of $(2,404) in the
year ended December 31, 1995 and $(172,575) in the 1996 Quarter related
primarily to the loss during the 1996 Quarter and a substantial increase in
accounts receivable in the later half of the 1996 Quarter as a result of an
increase in revenue, partially offset by an increase in accounts payable. Net
cash provided by operating activities was $45,160 in the year ended
December 31, 1994 and related primarily to accrued compensation that offset
the Company's $(53,100) net loss during that year.
During 1995, the Company obtained a bank loan and a line of credit
from two banks totalling $35,000. The $25,000 bank loan bears interest at
a fluctuating rate of the bank's prime rate plus two percent and is due in
October 1996. The $10,000 line of credit bears interest at the bank's
prime rate plus three percent and each draw is repayable in 36 equal
monthly installments of principal, plus interest. In addition the Company
financed the purchase of certain equipment through capital leases. The
principal balance of such leases was $68,082 at March 31, 1996 and is
payable in varying installments through the year 2000.
Since March 31, 1996, the Company has spent approximately $70,000 on
capital expenditures, consisting of furniture, fixtures and leasehold
improvements acquired and made in connection with the Company's recent
relocation of its principal offices. The Company expects to make additional
capital expenditures of approximately $75,000 during the quarter ending
September 30, 1996 consisting of furniture and computer equipment for its
principal offices. Additional capital expenditures may be made in connection
with the opening of additional sales offices.
In 1996, the Company raised gross proceeds of $950,000 in connection
with two private placements. Any sale of additional equity or convertible
debt securities will result in additional dilution to the Company's
shareholders. See "Certain Transactions -- Private Placements."
-23-
<PAGE>
BUSINESS
GENERAL
Since the Company's business is technical, readers of this Prospectus
are encouraged to refer to "Glossary" on page 49 for a definition
of certain terms used herein.
The Company's primary business is the design and creation of sites
("Web sites") for commercial organizations on that part of the Internet
known as the World Wide Web. The Company has designed and created, alone and
with others, more than 35 Web sites, including Web sites for the customers of
MCI Telecommunications Corporation ("MCI"), a subsidiary of MCI Communications
Corporation, and for Prudential Securities, America Online Incorporated and
International Business Machines, Inc., among others. Accordingly,
management believes that the Company is a recognized provider of these
services.
Web sites are increasingly being utilized as a new medium for
advertisement, promotion and technical support of an organization's
products and services. The Company believes Web sites can provide
commercial organizations benefits in addition to those available through
conventional media, including the ability to engage and entertain
consumers, provide in-depth information, reduce selling and operating
costs, expand distribution channels, promote major sporting and
entertainment events and monitor popularity of content and make timely
changes in response to real-time feedback. Web sites also offer businesses
the ability to obtain certain information about visitors to their sites.
The Company was founded in 1993 and initially operated a traditional
graphic design business. In August 1994 the Company shifted its principal
business to Web site design and creation but did not begin to generate
significant revenues therefrom until late 1995. The Company's principal offices
are located at The New York Information Technology Center, 55 Broad Street,
New York, New York 10004 and its telephone number is (212) 614-0191. The
Company's Web site is located at http://www.k2design.com.
INDUSTRY OVERVIEW
The Internet and the World Wide Web
The Internet is a global collection of thousands of computer networks
interconnected to enable commercial organizations, educational
institutions, government agencies and individuals to communicate
electronically, access and share information and conduct business. The
Internet was historically used by a limited number of academic
institutions, defense contractors and governmental agencies. Recently, use
of the Internet by commercial organizations and individuals has increased
significantly, in part as the result of cultural and business changes,
technological advances, including increases in microprocessor speed, and
the development of easy-to-use graphical user interfaces. "Graphical user
interfaces" in the context of the Internet are the graphics and text that
appear on a computer screen.
Much of the recent growth in Internet use by businesses and
individuals has been driven by the emergence of a network of servers and
information available on the Internet called the World Wide Web. The Web
is not only rich in content and format, containing magazines, news feeds
and corporate, product, educational, research, and political information,
it also enables users to engage in activities, including providing customer
service, conducting electronic commerce and banking, making reservations,
playing games and participating in discussion groups.
Web Sites
A Web site is a collection of one or more electronic documents or "Web
pages," which may contain textual, audio and video information, that are
published in a common format. Each Web site could contain from one to
hundreds of Web pages. Users can view Web pages by using widely available
software called "Web browsers" such as the Netscape Navigator or the
Microsoft Internet Explorer. Users specify which Web sites they wish to
view with their Web browser by entering a site's unique electronic Web
address, known as its Universal Resource Locator ("URL"). Alternatively,
users can navigate the Web by making use of the hypertext link capabilities
of Web documents. Hypertext links are active areas on a Web page which
when selected by a user automatically cause the browser to display a
specific page which can be located anywhere else on the Web, thus enabling
users to move from one Web page to another without having to know the
underlying address or URL of either document.
The rapid deployment of the Web has introduced fundamental and
structural changes in the way information can be produced, distributed,
gathered and consumed, lowering the cost of publishing information and
extending its potential reach. Businesses from many industries are
publishing product and company information or advertising materials and
collecting customer feedback and demographic information interactively.
The structure of Web documents allows an organization to publish
significant quantities of information while simultaneously allowing each
user to view selectively only those elements of the information which are
of particular interest. This feature makes possible the dynamic tailoring of
-24-
<PAGE>
information delivery to each user's interest in a cost effective and timely
fashion. The Web, by facilitating the publishing and exchange of
information, is dramatically increasing the amount of information available
to users.
Web sites are increasingly being utilized as a new medium for
advertisement, promotion and technical support of an organization's
products and services. The Company believes Web sites can provide
organizations one or more of the following benefits in addition to those
available through conventional media:
Engage and entertain consumers
Web sites can capture and maintain the attention of the target
audience in a way that is not easily achievable with conventional media.
Web sites can be designed to capture a consumer's attention by
incorporating a variety of entertaining motifs, such as games, storylines
and interaction with fictional characters. Web sites also can be designed
to retain the audience's attention by analyzing user responses, determining
user interests and providing dynamically tailored content. Businesses can
encourage repeated consumer interaction by continuously updating online
information.
Provide in-depth information
Web sites can offer a wealth of information not easily conveyed
through traditional methods and can provide users with the ability to
control the amount and nature of the information they receive.
Reduce costs
Businesses may seek to reduce selling and operating costs in a variety
of ways with Web sites. For example, a consumer can be introduced to,
gather information regarding, and, in some cases, purchase a company's
products directly through a Web site without the use of salespersons or
other intermediaries.
Expand distribution channels; event promotion
Web sites may enable businesses to open new distribution channels and
reach new audiences. A retailer may seek to create an international
presence through the World Wide Web or a business may seek to promote a
major sporting or entertainment event.
Quantify results
With the use of Web sites, businesses can monitor the popularity of
content and make timely changes in response to real-time feedback. For
example, a company can estimate the volume of traffic on a Web site, gather
information about the visitors to that site and monitor their level of
interest in the company's products and services.
K2 SERVICES
The Company follows a three-step creative and production process:
design, implementation, and testing. In the design phase the Company
conducts a needs assessment briefing with the customer in order to
determine project objectives and functional specifications of the product
and then creates a flow chart describing general concepts on a page by page
basis. The creative approach is then developed incorporating design, copy,
programming and the navigational system, focused on creating a user
friendly Web site. During the implementation phase, all artwork and copy
are developed and digitized. The content is then produced utilizing
various authoring tools and programming languages. Product testing on all
anticipated computer configurations takes place at various stages of the
implementation process. The Company's Web site services also include
assistance in the demographic and marketing analysis relating to the Web
site and its intended purpose and strategic planning for the business use
of the Web site, including identifying other Web sites from which hypertext
links could increase traffic on the customer's Web site and placing those
links on the customer's Web site. The Company also offers special features
on Web sites, such as key-word searching and audio.
To be effective, it is essential that a Web site be more than
attractive and that both the Web site and the information therein be easily
accessible and intuitively organized. As a provider of these
-25-
<PAGE>
services, the Company must combine creative and technical expertise to meet
its customers' needs. The Company's services add value to Web site
projects at every stage, from concept development through completion. Web
sites vary significantly in their size and complexity and the scope of
services rendered by the Company in connection with projects has ranged
from limited consulting services to complete creative and technical design
and construction of multi-level sites, including capture of live video feeds
and audio feeds from remote locations. Should a customer so desire, the
Company also offers numerous integrated services in conjunction with Web site
projects, including traditional graphic design services such as logo design for
the Web site or a particular product, brochures, point-of-sale displays and
other collateral marketing materials and print advertisement design and
layout.
The Company recently began to offer media placement services intended
to increase traffic on Web sites, principally by identifying, negotiating
for and purchasing hypertext links from other heavily trafficked Web sites.
The Company believes that if businesses increasingly embrace the Internet
as an advertising vehicle, their participation will subsidize in part the
creation and expansion of the information and resources available on the
Web which in turn is expected to stimulate an increase in the utilization
of the Web by businesses. The Company believes that advertisers will seek
to advertise on Web sites that offer a high volume of traffic and feature
flexible advertisement programs capable of reaching targeted audiences.
However, the Internet as an advertising medium is still evolving and,
consequently, advertisers seek demonstration of its effectiveness to
justify its use. Due to the limited information and experience regarding
Web advertising and a general unfamiliarity with the concept of interactive
advertising, advertisers require assistance with the design and placement
of advertisements on the Internet.
Because of the proliferation of new and sophisticated tools and
technologies, the Company believes that many businesses are unsure about
whether to use Web sites and how best to utilize them. The Company
believes that its potential customers will demand creative and technical
expertise and attention to the customers' business objectives from
providers of Web site services in order to realize one or more of the
benefits described above.
Creative Expertise
The Company believes that, in addition to the creative elements
required in traditional graphic design, superior Web sites require easy-to-
use and intuitive interfaces, seamlessly integrated technologies and an
engaging look and feel. Management believes that the Company's creative
developers are fully capable across the spectrum of expertise required to
meet customers' creative needs. In order to maintain high levels of
creativity and quality, the Company intends to recruit the best talent
available. However, competition for creative personnel is especially
intense and there can be no assurance that the Company will attract or
retain adequate creative talent to accomplish these goals. See "Risk
Factors -- Dependence on Key Personnel; Need for Additional Personnel;
Ability to Manage Growth."
Technological Expertise
The Company believes the creative application of leading technologies
is also crucial to the success of its business. During the three months
ended March 31, 1996, the Company hired three full-time computer
programmers skilled in various computer operating systems, tools and
languages, including Basic, FORTRAN, UNIX, Perl, Java, VRML, VDO and Real
Audio, among others. These programmers are responsible for providing
complex computer programming for special features on Web sites as well as
periodically assessing new technologies in order to identify and deploy,
directly and through independent contractors, those that are most promising
for enhancing the Company's business. Although, the Company had previously
relied on a single unaffiliated contractor to provide complex computer
programming services for special features on Web sites, the Company expects
its staff programmers to provide most of these services in the future. To
the extent additional complex programming is required the Company believes
that alternative providers of these services are available from the
contractor that provided these services in the past as well as from others,
on terms no less favorable to the Company than it enjoyed with such
contractor.
-26-
<PAGE>
Focus on Customers' Business Objectives
The Company has made understanding customers' business challenges a
primary focus in guiding the design of Web sites to address those chal-
lenges. The Company often works with customers' management to determine
how best to integrate Web sites into the customers' business goals.
COMPLETED PROJECTS
The Company has designed and created, alone and with others, more than 35
Web sites, including:
- Together with Ogilvy & Mather Advertising, the design and creation
of a Web site for International Business Machines, Inc. ("IBM")
(http://www.chess.ibm.park.org), to promote a chess match between Gary
Kasparov and an IBM computer that utilizes a computer chip called "Deep
Blue." The Web site incorporated the capture of live video feed of the match,
real-time chat boards, simultaneous transcription of commentary and the
integration of animation to display the progress of the match. Media reports
indicated that the Web site received approximately 5 million hits during the
match (hits are an indicator of the volume of traffic at a Web site).
- The design and creation of a Web site that is Prudential
Securities' Virtual Branch Office (http://www.prusec.com), containing
interactive features such as a wealth accumulation calculator, geographic
branch locator, daily market updates and a financial personality quiz.
- The redesign of the graphics and copy for MCI's marketplaceMCI Web
site (http://www2.pcy.mci.net/marketplace), MCI's online shopping mall.
Morgan Stanley's, "The Internet Report" named the site one of the eight
"coolest Web sites for commerce." During that project, the Company was
engaged to design and create a virtual retail store in the marketplaceMCI
mall for Champs Sporting Goods and thereafter for related businesses,
Footlocker and Lady Footlocker, and other unrelated businesses.
- The design and creation of a Web site for The Joseph Papp Public
Theater that was originally used to publicize its production of "The
Tempest," starring Patrick Stewart (http://www.publictheater.org). The
Company incorporated the theater's intricate (and already well known)
graphic style into the Web site, which was originally designed to accommodate
several Web browsers, including most versions of the Netscape Navigator, America
Online, Pipeline, Mosaic, Spyglass and Chameleon. The Web site integrated
standard production photographs from The Tempest with a plot summary of the
show, to create a click-to-enlarge tour of the production. The Web site was
launched at the after-show party following its opening performance. Thereafter,
the theater hired the Company to design and create another Web site to promote
its hit Broadway show, "Bring on Da Noise/Bring on Da Funk," on which, among
other things, was capture of live video feed from the opening night party and
pre-recorded portions of the show. The site also featured a three-dimensional
VRML (virtual reality mark-up language) walk-through of a theater, digitized
portions of the show's soundtrack, live commentary and electronic mail telegram
capabilities to the cast. VRML is a three dimensional browsing environment that
is an advanced state of environment creation on the Web.
- The creation of product identity, including name and logo, for a
software product developed by America Online Incorporated ("AOL") for
potential on-line content providers, together with a Web site dedicated to
that product (http://www.aol.com/about/devstudio/). AOL needed full
collateral systems as well as multiple online presences to announce and
advertise the tools. The Web site features multi-level informational
architecture, and was replicated as a location on AOL's proprietary on-line
service. The Company also designed and created a variety of collateral
products, including CD-ROM packaging.
- The design and creation of a Web site for the National Association
of Printers and Lithographers (http://www.napl.org) that includes
a database application utility that enables users to input certain sales
and operating data and instantly generate a graphical representation of
statistical information comparing their data to the rest of the industry.
-27-
<PAGE>
K2 STRATEGY
Capitalize on Accomplishments and Market Opportunities
The Company believes that the proliferation of the Internet will
continue to provide substantial opportunities to the Company and that its
successfully completed projects will continue to enhance its marketing
efforts.
Leverage Development Efforts
In the course of developing customized Web sites for certain
customers, the Company may gain technical know-how that can be applied in
other efforts. This knowledge is preserved by the Company in order to
facilitate access by the entire production staff, potentially reducing
future development costs.
Deploy Leading Technologies
The Company's objective is to apply both proven and emerging
technologies as they become available in order to maximize the
effectiveness of its Web site services. The Company plans to form non-
exclusive relationships with key technology providers in an effort to gain
access to, and influence the features of, their technologies in
development.
Channel Marketing
The Company will continue to focus on developing strategic
relationships with Channel Sources that seek to augment their businesses by
making available Web site design and creation services provided by the
Company and other third parties. To date, the Company's only significant
continuing Channel Source relationship has been and continues to be with
MCI. See "-- Marketing -- Channel Sources."
MARKETING
General
The Company markets its services directly and seeks to form strategic
marketing relationships with third parties. The Company has three
employees dedicated to sales and marketing and each of the Company's
executive officers spends a portion of his time marketing the Company's
services. The Company also seeks to attract new customers through other
methods, including referrals from existing customers, and the Company
intends to commence advertising its services in certain trade and business
publications by September 1996.
Channel Sources
The Company's marketing efforts to date have substantially focused on,
and will continue to focus on, developing strategic relationships with
other companies, such as advertising agencies and Internet service
providers ("Channel Sources") that seek to augment their businesses by
making available Web site design and creation services provided by the
Company and other third parties. The Company therefore targets advertising
agencies that do not offer Web site related services, providers of other
Internet services (e.g., access, connectivity and Web site hosting) and
other businesses whose customers are likely to require the services that
the Company provides. See "Risk Factors -- Evolving Marketing Strategy."
Relationship with MCI
To date, the Company's only significant continuing Channel Source
relationship has been and continues to be with MCI. In 1995, sales to MCI
and to referrals from MCI, were approximately $180,000 in the aggregate and
accounted for approximately 15% of the Company's revenues, making MCI the
Company's second largest source of revenues. All revenues derived from MCI
in 1995 related to an MCI Internet initiative known as marketplaceMCI, an
online shopping mall. In October 1995, the Company completed the redesign
of the graphics and provided copy for MCI's marketplaceMCI Web site and
thereafter designed and created five Web sites for MCI's customers (three
of which were for businesses under common control, which in the aggregate
accounted for approximately 80% of referral revenues derived from MCI
during 1995). The Company is aware that MCI is presently redefining its
online shopping mall concept and, therefore, may not provide any future
business for the Company.
-28-
<PAGE>
Nevertheless, the Company continues to derive revenues from another
Internet initiative of MCI commenced in February 1996 called "Webworks,"
pursuant to which MCI salespersons offer comprehensive Web site services to
their customers and potential customers. In connection with Webworks, MCI
co-markets the Company's services and after pre-screening an interested
customer, introduces that customer to the Company. If the customer retains
the Company, the MCI salesperson receives a commission ranging from two to
four percent of the gross revenues derived by the Company from that
project. Executives of the Company have participated in presentations made
to MCI salespersons in the northeastern United States regarding the
mechanics of the program and the Company's role in the program and the
Company has been advised that it is considered by MCI to be a "best of
breed" vendor. The Company has commenced work on two projects generated
from Webworks, including one for the New Jersey Sports and Exposition
Authority pursuant to a non-binding letter of intent for the design and
creation of the main Web site for the Meadowlands Sports Complex. See
"Risk Factors -- Relationship with MCI."
Expand Scope of Services and Geographic Sales Offices
The Company seeks to expand both the breadth and depth of its Web site
services abilities. The Company seeks to achieve these objectives both by
continuing to expand the scope of the services that it currently offers and
adding new sales offices in cities where clients have recognized the need
for the Company's services while performing the services in the New York
office. The Company plans to open a sales office in Dusseldorf, Germany.
The Company may also acquire products, technologies or businesses that may
expand the scope of services offered by the Company and geographic
locations of the Company.
CUSTOMERS
Since substantially all of the Company's direct customers (and certain
Channel Sources) have retained the Company on a single project basis,
customers from whom the Company generated substantial revenue in one period
have not been a substantial source of revenue in a subsequent period. Due
to the Company's limited operating history and the emerging nature of the
Internet, the Company generally cannot be sure whether its relationships with
customers will continue to be on a one project per customer basis. The
Company's three largest sources of revenues during 1995 were J. Walter
Thompson (relating to one project for the benefit of Bell Atlantic) MCI and
Prudential Securities, which accounted for approximately 18%, 15% and 12%,
respectively, of the Company's revenues during that year. During the 1996
Quarter, IBM accounted for approximately 60% of the Company's revenues.
Since the Company believes that J. Walter Thompson no longer provides
substantial services to Bell Atlantic, the Company does not expect to
generate additional revenues from J. Walter Thompson in the immediate
future, if at all. Moreover, the Company is aware that J. Walter Thompson
uses providers of Web site services substantially similar to those provided
by the Company and also has an equity interest in a provider of Web site
services. Similarly, since Prudential Securities and IBM each hired the Company
for a specific project, each of which has been completed, the Company does not
expect to generate ongoing revenues from Prudential Securities or IBM in the
foreseeable future. See "Risk Factors -- Fluctuations in Quarterly Operating
Results, Cash Requirements and Margins" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
As of May 1, 1996, the Company has completed more than 35 Web site
design and creation projects, each generating gross revenue ranging from
$1,500 to more than $300,000, in addition to several consulting engagements
and interactive projects other than on the World Wide Web. The Company is
also currently engaged to design and create 18 additional Web site
projects. Since the Company has a limited operating history and has
completed only approximately 35 projects in connection with which the scope
of its services varied greatly, and since the market for the Company's
services is new and rapidly evolving, management does not believe that any
project that it has completed is necessarily typical of its past experience
or indicative of the future, including with respect to the nature and
purpose of the relationship or project, the scope of services provided by
the Company in connection therewith or the fee payable to the Company. However,
management believes that revenues generated by these 18 projects will
collectively be consistent with the Company's past experience.
Because the Company's projects are generally completed in a relatively
short period of time, the Company has not experienced significant backlog.
-29-
<PAGE>
FUTURE SOFTWARE DEVELOPMENT PROJECTS
The Company is also engaged in preliminary negotiations to license one
World Wide Web related software program known as Visitrac and plans to develop
another program known as Web Express. Visitrac is intended to provide detailed
information about visitors to a particular Web site and Beta testing of Visitrac
is expected to commence in July 1996. Web Express is intended to enable an
individual or organization to design a graphically enhanced Web site without
incurring substantial design and development costs. Research and development
of Web Express has not yet commenced. There can be no assurance that either of
these programs will be developed or if developed, successfully commercialized.
The Company did not expend any money in connection with research and development
in 1994 or 1995. In the quarter ended March 31, 1996, the Company's research
and development expenditures were immaterial. During the quarter ending
June 30, 1996, the Company's research and development expenditures were
approximately $50,000, and related primarily to Visitrac.
GOVERNMENT REGULATION
The Company is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses
generally, and there are currently few laws or regulations directly
applicable to Web site service companies. However, due to the increasing
media attention focused on the Internet, it is possible that a number of
laws and regulations may be adopted with respect to the Internet, covering
issues such as user privacy, and pricing and characteristics and quality of
products and services. The adoption of any such laws or regulations may
decrease the growth of the Internet, which could in turn decrease the
demand for the Company's services and products and increase the Company's
cost of doing business or cause the Company to modify its operations, or
otherwise have an adverse effect on the Company's business, operating
results or financial condition. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership,
libel and personal privacy is uncertain. The Company cannot predict the
impact, if any, that future regulation or regulatory changes may have on
its business. In addition, Web site developers such as the Company face
potential liability for the actions of customers and others using their
services, including liability for infringement of intellectual property
rights, rights of publicity, defamation, libel and criminal activity under
the laws of the U.S. and foreign jurisdictions. Moreover, the Company
lacks errors and omissions insurance. Any imposition of liability could
have a material adverse effect on the Company.
The Communications Decency Act of 1996 (the "1996 Act"), which became
effective on February 8, 1996, imposes criminal liability on persons sending
or displaying in a manner available to minors indecent material on an
interactive computer service such as the Internet. The 1996 Act also imposes
criminal liability on an entity knowingly permitting facilities under its
control to be used for those activities. Although the Third Circuit Court
of Appeals recently preliminarily enjoined the enforcement of portions of the
1996 Act, that ruling is expected to result in a trial or an expedited appeal
to the United States Supreme Court. If upheld, the interpretation and
enforcement of these provisions are uncertain and the penalties imposed by the
1996 Act include fines and imprisonment. This legislation may decrease demand
for Internet access, chill the development of Internet content, or have other
adverse effects on Web site service providers such as the Company. In addition,
in light of the uncertainty of the interpretation and application of this law,
there can be no assurance that the Company would not have to modify its
operations to comply with the statute. The impact of the 1996 Act on the
Company and its business cannot be predicted.
COMPETITION
The markets for the Company's services are highly competitive and are
characterized by pressures to reduce prices, incorporate new capabilities
and accelerate completion schedules. The Company expects competition for
its services to intensify in the future, partly because there are no
substantial barriers to entry into the Company's business. There can be no
assurance that the Company will be able to offset the effects of any
resulting price reductions with an increase in the number of its customers
or projects, higher revenue from enhanced services or products, cost
reductions or otherwise and its failure to do so could have a material
adverse effect on its Company's business, financial condition and operating
results.
The Company faces competition from a number of sources, including
potential customers that perform Web site development services in-house.
These sources also include other Web site service boutique firms,
communications, telephone and telecommunications companies such as
Telecommunications Inc., computer hardware and software companies such as
Microsoft Corporation and Adobe Systems Incorporated, established online
services companies, advertising agencies, direct access Internet and
Internet-services and access providers as well as specialized and
integrated marketing communication firms such as CKS Group, Inc. and Eagle
River Interactive, Inc., all of which are entering the Web site design and
creation market in varying degrees and are competing with the Company, and
many of which have announced plans to offer expanded Web site design and
creation services. Many of the Company's competitors or potential
competitors have longer operating histories, longer customer relationships
and significantly greater financial, management, technological,
development, sales, marketing and other resources than the Company. The
Company's ability to retain
-30-
<PAGE>
relationships with Channel Sources and its existing customers and generate
new customers and relationships with Channel Sources depends to a
significant degree on the quality of its services and its reputation, as
compared with the quality of services provided by and the reputations of
the Company's competitors. The Company also competes on the basis of
creative reputation, price, reliability of services and responsiveness.
There can be no assurance that the Company will be able to compete and its
inability to do so would have a material adverse impact on the Company's
business, financial condition and operating results.
EMPLOYEES
As of May 21, 1996, the Company has 29 employees, of which 27 are
full-time employees and the remaining two are part-time employees. Full-
time employees include five salespeople, four account managers and eight
production personnel, in addition to executive management and support
staff.
PROPERTIES
The Company's offices occupy approximately 5,800 square feet of an office
building known as The New York Information Technology Center, 55 Broad Street,
New York, New York at an annual rent ranging from $86,955 to $98,549, payable in
equal monthly installments, plus the Company's allocable share of certain real
property taxes and building operating expenses in excess of fixed levels as
provided in the lease.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings as of the
date of this Prospectus.
-31-
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Company's executive officers and directors, and their ages as of May 1,
1996, are as follows:
Name Age Position
---- --- --------
David J. Centner 30 Chairman of the Board, Chief Executive
Officer, Chief Financial Officer and
Director
Matthew G. de Ganon 33 Vice Chairman, President, Chief Operating
Officer and Director
Douglas E. Cleek 33 Executive Vice President--Chief Creative
Officer and Director
Bradley K. Szollose 33 Executive Vice President--Marketing,
Treasurer, Secretary and Director
James A. Favia(1) 62 Director
Steven N. Goldstein(1) 56 Director
(1) Will assume a position of director immediately upon consummation of the
offering.
David J. Centner joined the Company in July 1994. Mr. Centner has
been the Company's Chairman of the Board of Directors, Chief Executive
Officer and Chief Financial Officer since March 1995. From August 1989 to
July 1994, Mr. Centner operated a business that offered computer
consulting, custom application programming and computer personnel placement
services for such clients as Merrill Lynch, Bankers Trust, Chase Manhattan
Bank, Chemical Bank and American Express. Mr. Centner has a Bachelors of
Science degree in Entrepreneurial Management from the Wharton School of
Business.
Matthew G. de Ganon has been the Company's Vice Chairman, Chief
Operating Officer and a Director since he joined the Company in July 1995 and
has been President since June 1996. For the two years prior to joining the
Company, Mr. de Ganon operated a business that created CD-ROM products and
offered consulting services regarding the use of electronic delivery to
publishers of newsletters and directories. Mr. de Ganon is co-author of the
essay "Overcoming Future Shock on the Superhighway: Suggestions for Providers
and Technocrats" published and presented in the 1994 National Online Conference
Proceedings. From August 1992 to July 1993, Mr. de Ganon was the Vice President
of New Media of a small software developer and value added reseller. Mr. de
Ganon's work focused on UNIX based 4GL accounting software customization for
corporate clients. From May 1991 to July 1992, Mr. de Ganon was an Executive
Assistant - Casting Administration for the Motion Picture Group of Universal
Studios, Inc. Prior to that, Mr. de Ganon was a franchised theatrical agent
with the Stone Manners Agency in Los Angeles, California from August 1987 to May
1991.
Douglas E. Cleek, who co-founded the Company in 1993, has been the
Company's Executive Vice President - Chief Creative Officer and a Director
of the Company since it was reorganized as a corporation in January 1995.
From 1993 until then, Mr. Cleek was a general partner of the Company. For
more than five years prior thereto, Mr. Cleek was an Art Director for
William Allen & Co. and its successor, A.J. Bart & Sons, graphic design
firms specializing in graphic promotional materials for the hospitality
industry.
Bradley K. Szollose, who co-founded the Company in 1993, has been the
Company's Executive Vice President - Marketing, Treasurer, Secretary and a
Director of the Company since it was reorganized as a corporation in
January 1995. From 1993 until then, Mr. Szollose was a general partner of
the Company. For more than five years prior thereto, Mr. Szollose was a
freelance Art Director for the Caribiner Group, producers of corporate
theater and related promotional/entertainment events, where he managed a
team of artists and photographers to coordinate film shooting and art
preparation under the direction of senior designers.
James A. Favia is presently retired. Mr. Favia is a part-time consultant
to Donald & Co. Securities, Inc., the Representative of the several underwriters
in this offering. From November 1988 to June 1992, Mr. Favia was a principal of
Shaw Venture Partners, a venture capital fund. From 1983 to 1988, Mr. Favia was
president of Favia, Hill & Associates, a wholly owned subsidiary of Chemical
Bank responsible for money management for institutional clients. From 1974 to
1983, Mr. Favia was senior vice president, Chemical Bank, and prior to that he
was in charge of Chemical Bank's research department from 1965 to 1974. Prior to
that, Mr. Favia was a general partner and research director for Kuhn, Loeb &
Company, an international investment bank. Mr. Favia has a Masters of Business
Administration degree in business administration from New York University, and
a Bachelor's of Arts degree in economics from Brooklyn College. Mr. Favia is
also a director of Eastco Industrial Safety Corp., a public company that
manufactures industrial safety products.
Dr. Steven N. Goldstein has been Program Director, Inter-Agency and
International (Networking) Coordination Director of Network Services at the
National Science Foundation ("NSF") since June 1989 and is responsible for the
international networking coordination in support of the communication needs of
the United States research and education community. Dr. Goldstein has directed
NSF's International Connections Management ("ICM") project which, in the past
five years, has assisted in connecting approximately 20 countries to the
Internet. Dr. Goldstein has also collaborated with Japanese networkers in the
formation of academic Internet service in Japan. Presently, Dr. Goldstein is
also the U.S. coordinator for the G-7 Global Information Society initiative's
theme "Global Interoperability of Broadband Networks" under which he coordinates
closely with Japan's high-performance networking projects. Dr. Goldstein has a
B.S. and Masters degrees in physics from the Massachusetts Institute of
Technology and a Doctorate in Engineering and Public Policy from Carnegie-Mellon
University. Dr. Goldstein is also a member of the Institute of Electrical and
Electronics Engineers, the Association for Computing Machinery and the Internet
Society.
Directors are elected annually at the Company's annual stockholders'
meeting. Each director of the Company serves until his successor is
elected and qualified or until his earlier death, resignation, removal or
disqualification. The officers are elected annually by the directors. The
Board of Directors plans to establish compensation and audit option
committees upon completion of this offering. The compensation committee
will consist of Mr. Centner, Mr. Favia and Mr. Goldstein, and will
-32-
<PAGE>
make recommendations to the Board concerning salaries and incentive
compensation for employees and consultants of the Company. The audit
committee will consist of Mr. Centner, Mr. Favia and Mr. Goldstein and
will make recommendations to the Board regarding the selection of
independent auditors and review and evaluate the Company's internal
controls.
The Company currently does not compensate its directors for acting in
that capacity. In addition, non-employee directors are entitled to receive
stock options under the stock option plan described below. To date, no
director of the Company has been compensated for serving in such capacity.
EXECUTIVE COMPENSATION
The following table sets forth the amount of all compensation paid by the
Company for services rendered during 1995 to the Company's Chief Executive
Officer. No executive officer had total salary and bonus compensation in excess
of $100,000.
Summary Compensation Table
Annual Compensation
-------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation(1)
--------------------------- ---- ------ ----- ---------------
David J. Centner
Chief Executive Officer ....... 1995 $30,000 --- ---
(1) The aggregate amounts of personal benefits not included in the Summary
Compensation Table do not exceed 10% of the total annual salary and
bonus reported for the named executive officer.
VOTING AGREEMENT
As a result of a Voting Agreement to be entered into by Messrs.
Centner, de Ganon, Cleek and Szollose prior to the consummation of this
offering, Matthew de Ganon will have voting control over all of the Common
Stock owned by all of them, except that such shares must always be voted in
favor of the election as directors of each of them. In addition, the
Voting Agreement will grant each party thereto a right of first refusal as
to the sale of the others' Common Stock. The Voting Agreement will expire
on the 10th anniversary of this offering and may be extended for an
additional 10-year period if a majority of the parties approve such an
extension. See "Risk Factors -- Voting Agreement, Authorization of
Preferred Stock and Other Anti-Takeover Devices."
EMPLOYMENT AGREEMENTS
Upon consummation of this offering, David J. Centner, Matthew G. de Ganon,
Bradley K. Szollose and Douglas E. Cleek will be employed under employment
agreements expiring December 31, 1998, pursuant to which they will each receive
annual base salaries of $90,000 for the remainder of 1996, $117,500 for 1997 and
$127,500 for 1998. They will each also be entitled to 1.88% of the Company's
income before provision for federal income tax and before deductions of these
bonuses in the applicable fiscal year. All of the employment agreements prohibit
competition with the Company during the term of the agreements.
1996 STOCK OPTION PLAN
The Company has adopted its 1996 Stock Option Plan (the "Plan"),
pursuant to which designated employees, including officers and directors of
the Company will be entitled to receive stock options. Options to purchase
an aggregate of 225,000 shares of Common Stock are available for grant
under the Plan. The exercise price of all options will be at least 85% of the
fair market value of the Common Stock on the debt of Grant.
Options to purchase an aggregate of 75,000 shares of Common Stock have
been granted to executive officers of the Company. In January 1996,
Messrs. Centner, de Ganon, Szollose and Cleek were each granted options to
acquire (i) 6,250 shares of Common Stock at an exercise price of $1.75 per
share, (ii) 6,250 shares of Common Stock at an exercise price of $3.50 per
share and (iii) 6,250 shares of Common Stock at an exercise price of $6.75
per share.
In addition, in January 1996 an option to purchase an aggregate of 25,000
shares of Common Stock at an exercise price of $1.75 per share was granted
to a consultant to the Company.
All of these options vest in five equal annual installments commencing
in January 1996.
-33-
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of shares of the Common Stock as of the date of this
Prospectus by (i) each person known by the Company to own beneficially 5%
or more of the outstanding shares of Common Stock, (ii) each director of
the Company, and (iii) all directors and executive officers of the Company
as a group.
<TABLE><CAPTION>
Number of
Shares Percent Beneficially
Beneficially Owned
Owned Before --------------------------
and After Before After
Name and Address of Beneficial Owner (1) Offering Offering Offering
---------------------------------------- ----------------- -------- ---------
<S> <C> <C> <C>
David J. Centner . . . . . . . . . . . . . . . . . 477,620(2)(3) 19.1 13.6
Matthew G. de Ganon . . . . . . . . . . . . . . . 477,620(2)(3) 19.1 13.6
Douglas E. Cleek . . . . . . . . . . . . . . . . . 477,620(2)(3) 19.1 13.6
Bradley K. Szollose . . . . . . . . . . . . . . . 477,620(2)(3) 19.1 13.6
James A. Favia . . . . . . . . . . . . . . . . . . 0 -- --
Steven N. Goldstein . . . . . . . . . . . . . . . . 0 -- --
All Directors and executive officers as a
group (six persons) . . . . . . . . . . . . . . . 1,910,480(4)
</TABLE>
______________________
(1) The address of each beneficial owner is that of the Company's
principal executive offices.
(2) Includes 3,750 shares of Common Stock underlying presently exercisable
stock options and excludes 15,000 shares of Common Stock underlying
stock options that are not presently exercisable. See "Management --
1996 Stock Option Plan."
(3) Pursuant to a Voting Agreement, the voting control over all of these
shares will be vested in Matthew de Ganon, except that these shares
must always be voted in favor of the election as directors of Messrs.
Centner, de Ganon, Cleek and Szollose. See "Management -- Voting
Agreement."
(4) Includes 15,000 shares of Common Stock underlying presently
exercisable stock options and excludes 60,000 shares of Common Stock
underlying stock options that are not presently exercisable. See
"Management -- 1996 Stock Option Plan."
-34-
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
Up to 600,002 shares of Common Stock may be offered by the 39 selling
stockholders who acquired those shares in private placements as indicated
in the column "Shares of Common Stock" in the chart below, but are not included
in the offering of securities by the Company that is underwritten by the
Representative. The Company has agreed to bear all expenses (other than
underwriting or selling commissions or any fees and disbursements of counsel
to such Selling Stockholders) in connection with the registration of their
securities. See "Certain Transactions -- Private Placements."
The following table sets forth certain information with respect to
holders for whom the Company is registering these shares. None of the
holders has held any position or office or has had a material relationship
with the Company or any of its affiliates within the past three years,
other than Harvey Berlent who is a consultant to the Company. Except as
set forth herein, the Company believes that none of the holders listed
below owns any other securities of the Company. The Company will not
receive any of the proceeds from the sale of these shares.
-35-
<PAGE>
<TABLE><CAPTION>
Percent of Class Beneficially Owned
Shares of --------------------------------------
Name Common Stock(1) Before Offering After Offering
---- ------------ --------------- ----------------
<S> <C> <C> <C>
Anaconda Capital, L.P. 40,000 1.60 1.14
Charles Abramowitz 6,871 * *
Gerald R. Appel 14,700 * *
Harvey N. Berlent(2) 14,000 * *
Michael Cantor 42,857 1.72 1.23
Cooperative Holding Corporation 14,286 * *
Domaco Venture Capital Fund 14,000 * *
Gregory D. Dwyer 5,000 * *
Andrew J. Finkelstein 4,000 * *
Frog Hollow Partners/2 15,000 * *
R. Ghosh 12,000 * *
Harry F. Goldberg 7,143 * *
Ward Hunt 9,429 * *
Leo Holding, Inc. 2,857 * *
Daniel E. Koshland Jr. 28,571 1.14 *
Milton Koffman 14,286 * *
E. Kohler 120,000 4.81 3.43
Joseph Lombardi 8,571 * *
Alan J. Rubin 7,143 * *
Anthony Salvo 7,286 * *
Michael F. Sassi 7,143 * *
George Sayour Family Foundation Inc. 7,000 * *
Paul Sayour 7,000 * *
Richard Serbin and Kathe Serbin JTWROS 14,286 * *
Ronald Setzkorn and Christina Setzkorn
JTWROS 14,286 * *
Eugene Silverman 7,143 * *
William Smith 28,571 1.14 *
Starfin International 14,286 * *
Anthony P. Towell 14,286 * *
Rainwater Enterprises, LTD - Defined
Benefit Pension Plan 6,000 * *
Richard L. Tuch 5,000 * *
Carlton E. Turner 4,000 * *
Bao Thu Nguyen Vo 7,500 * *
Barron S. Wall, Inc. 17,143 * *
Henry G. Warner 8,000 * *
Robert Westerheide 14,286 * *
Anthony Yodice 14,286 * *
Adam D. Young 7,500 * *
Mark Young 14,286 * *
-------
Total 600,002
=======
</TABLE>
_________________________
* Less than one percent.
(1) Reflects the number of shares beneficially owned by each
selling stockholder and the number of shares that may be ultimately
offered for sale by such selling stockholder.
(2) Excludes options to purchase 25,000 shares of Common Stock for $1.75
per share.
The sale of the aforementioned shares by the Selling Stockholders may
be effected from time to time in transactions (which may include block
transactions) in the over-the-counter market, in negotiated transactions,
through the writing of options on the Common Stock, or a combination of
such methods of sale, at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices. The
Selling Stockholders may effect such transactions by selling their Common
Stock directly to purchasers or to or through broker-dealers which may act
as agents or principals. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling
Stockholders and/or the purchasers of Common Stock from them for which such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Stockholders and any broker-dealers
that act in connection with the sale of such holders' Common Stock might be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act.
-36-
<PAGE>
The Selling Stockholders have agreed that they will not sell any of
the Common Stock owned by them and registered herein for a period of six
months from the date hereof, without the prior written consent of the
Representative.
-37-
<PAGE>
CERTAIN TRANSACTIONS
FORMATION AND FINANCING OF THE COMPANY
The Company was founded in 1993 by Messrs. Cleek and Szollose as a
general partnership. The aggregate capital accounts of Messrs. Cleek and
Szollose at December 31, 1993 were $13,231. During 1994, Messrs. Cleek and
Szollose were paid an aggregate of $38,552 in partnership draws and the
Company also sustained a net loss of $(53,100), resulting in partners'
deficiency of $(78,421) at year end. Since the Company was a partnership
during that year, the Company's net loss for that period is reportable on
the personal tax returns of Messrs. Cleek and Szollose in proportion to
their relative partnership interests.
In January 1995, the Company was reorganized as a New York corporation
that elected to be treated as an S corporation for tax purposes which
issued an aggregate of 100 shares of Common Stock. In connection with that
reorganization, Messrs. Cleek and Szollose contributed all of their
partnership interests in the predecessor partnership to the newly formed
corporation in exchange for 37.5 shares each of its common stock and Mr.
Centner contributed $10,000 for 25 shares of its common stock.
In July 1995, Messrs. Szollose and Cleek each contributed back to the
Company 12.5 shares of Common Stock and the Company sold 25 shares of
Common Stock to Matthew de Ganon in exchange for his contribution to the
Company of a loan due to him by the Company of $25,000.
In January 1996, the New York corporation became a wholly-owned
subsidiary of a newly formed Delaware corporation as a result of the
exchange by each of Messrs. Centner, de Ganon, Cleek and Szollose of their
respective 25 shares of common stock of the New York corporation for
473,870 shares of Common Stock of the Delaware corporation.
PRIVATE PLACEMENTS
In February 1996 (the "First Private Placement") and May 1996 (the
"Second Private Placement") the Company sold an aggregate of 600,002 shares
of Common Stock for total gross proceeds of $950,000. In the First Private
Placement, the Company sold 200,000 shares of Common Stock for $1.25 each
and in the Second Private Placement the Company sold 400,002 shares of
Common Stock for $1.75 each. The investors in these offerings were granted
piggyback registration rights for all of their shares.
PERSONAL GUARANTEES
Messrs. Centner, de Ganon, Cleek and Szollose have each personally
guaranteed a $25,000 line of credit that the Company maintains with a bank
and one or more of them have also personally guaranteed several of the
Company's equipment leases. It is expected that upon consummation of this
offering the guarantees of the bank line of credit will be terminated.
BUSINESS TRANSACTIONS WITH AFFILIATES
Prior to joining the Company, Matthew de Ganon operated a business
that created CD-ROM products and offered consulting services regarding the
use of electronic delivery to publishers of newsletters and directories.
During 1995, Mr. de Ganon performed consulting services for the Company for
which he earned approximately $34,000, of which he was paid in cash
approximately $9,000. In July 1995, Mr. de Ganon contributed to the Company his
right to receive the remaining $25,000 in exchange for his 25% interest in the
Company.
FUTURE TRANSACTIONS
All future transactions and loans between the Company and its officers,
directors and five percent shareholders will be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties and will be
approved by a majority of the independent, disinterested directors of the
Company.
-38-
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 9,000,000
shares of Common Stock, par value $.01 per share, and 1,000,000 shares of
preferred stock, par value $.01 per share.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share in the
election of the Company's directors and all other matters submitted to a
vote of stockholders and to share ratably in all assets available for
distribution to holders of record of Common Stock upon liquidation or
dissolution. There are no cumulative voting rights with respect to the
election of the Company's directors. The holders of Common Stock have no
pre-emptive or other subscription rights. The Company's outstanding Common
Stock is fully paid, validly issued and non-assessable. The Company does
not intend to pay any dividends on its Common Stock in the foreseeable
future. See "Dividend Policy."
WARRANTS
Each Warrant will be issued pursuant to a Warrant Agreement between the
Company and Continental Stock Transfer & Trust Company as warrant agent. The
following statements are qualified in their entirety by reference to the
Warrant Agreement, which is included as an exhibit to the Registration
Statement of which this Prospectus is a part. Two Warrants will entitle the
holder thereof to purchase one share of Common Stock at a price of $ per
share (125% of the initial public offering price of the Common Stock) at any
time commencing on the date of this Prospectus and terminating five years
thereafter. The Warrants will be redeemable at the Company's option, upon not
less than 30 days' written notice to the holders at a price of $.05 per warrant
if the closing price of the Common Stock has been equal to or greater than 140%
of the then exercise price of the Warrants for 20 consecutive trading days
ending on the fifth day prior to the notice of redemption. During such 30 day
period, the holders shall have the right to exercise such Warrants. The
right to purchase Common Stock upon exercise of the Warrants will be
forfeited unless the Warrants are exercised prior to the date specified in
the notice of redemption. See "Risk Factors -- Potential Adverse Effect of
Redemption of Warrants."
The Warrants will not confer upon the holders thereof any voting, pre-
emptive or other rights as stockholders of the Company.
The exercise price of the Warrants and/or the amount of shares of
Common Stock or other securities and property to be obtained upon the
exercise of the Warrants are subject to adjustment only under certain
circumstances, including stock-splits, stock dividends, any subdivision,
combination or recapitalization of the Common Stock, or the sale of all or
substantially all of the Company's assets or the merger or consolidation of
the Company with or into another corporation in which the Company is not
the surviving corporation.
The Warrants may be exercised upon the surrender of the Warrant
certificate therefor, duly endorsed by the holder thereof, at the office of
the Company (or the warrant agent in respect of Warrants registered under
the Act), on or prior to the expiration date thereof accompanied by payment
of the full exercise price for the Warrants to be exercised by certified or
bank cashier's check payable to the order of the Company. Upon receipt by
the Company (or the warrant agent), of duly executed certificates and
payment of the requisite exercise price, the Company (or the warrant
agent), shall issue and deliver certificates representing the number of
shares of Common Stock so purchased to the exercising warrantholder. If
less than all of the Warrants evidenced by a Warrant certificate are so
exercised, a new Warrant certificate representing the remaining Warrants
will be issued and delivered to such warrantholder.
-39-
<PAGE>
Warrants may not be exercised for fractional shares. If, however, a
warrantholder exercises all of his Warrants, the Company will pay to such
warrantholder an amount in cash based upon the then market value of the
fractional interest of the Common Stock on the last trading date prior to
the date of exercise of the Warrants in lieu of issuing any fractional
shares.
No Warrant will be exercisable unless at the time of exercise the
Common Stock to be purchased has been registered, or is exempt from
registration, under applicable federal and state securities laws. The
Company will use its best efforts to have all shares so registered or
exempted and to maintain a current prospectus relating thereto until the
expiration of the Warrants, although there can be no assurance that it will
be able to do so. See "Risk Factors -- Restrictions on Exercise of the
Warrants."
PREFERRED STOCK
The Board of Directors may issue, without further action of the
stockholders of the Company, preferred stock in one or more series and fix
the rights and preferences thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms and redemption (including
sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series.
The rights of the holders of Common Stock, including voting rights,
will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. Any
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of outstanding voting
stock of the Company. The Company has no current plans to issue any shares
of preferred stock.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent and Warrant Agent for the Common Stock and Warrants
is Continental Stock Transfer & Trust Company.
CERTAIN ANTI-TAKEOVER EFFECTS
In addition to the provisions of a Voting Agreement among Messrs.
Centner, de Ganon, Cleek and Szollose, the provisions of the Company's
certificate of incorporation ("Certificate") and by-laws ("Bylaws")
summarized in the succeeding paragraphs may be deemed to have anti-takeover
effects and may delay, defer or prevent a tender offer or takeover attempt
that a stockholder might consider to be in such stockholder's best
interest, including those attempts that might result in a premium over the
market price for the Company's securities. See "Risk Factors -- Voting
Agreement, Authorization of Preferred Stock and Other Anti-Takeover
Devices" and "Management -- Voting Agreement."
REMOVAL OF DIRECTORS AND FILLING VACANCIES
The Certificate and Bylaws provide that a director may be removed by
stockholders only for cause with the approval of the holders of a majority
of the total voting power of all outstanding securities of the Company then
entitled to vote generally in the election of directors, voting together as
a single class, subject to the rights of the holders of any class of
preferred stock then outstanding to remove additional directors elected by
such holders under specified circumstances.
The Certificate and Bylaws provide that, subject to any rights of
holders of any class of preferred stock then outstanding, all vacancies on
the Board of Directors, including those resulting from an increase in the
number of directors, may be filled solely by a majority of the remaining
directors, even if they do not constitute a quorum. When one or more
directors resign from the Board of Directors effective at a future date, a
majority of directors then in office, including the directors who are to
resign, may vote on filling the vacancy.
-40-
<PAGE>
Advance Notice Requirements for Stockholder Proposals and Director
Nominations
The Bylaws establish advance notice procedures with regard to
stockholder proposals and the nomination, other than by or at the direction
of the Board of Directors or a committee thereof, of candidates for
election as directors. These procedures provide that the notice of
stockholder proposals and stockholder nominations for the election of
directors at any meeting of stockholders must be in writing and be received
by the Secretary of the Company not less than 60 nor more than 90 days
prior to the meeting (or if less than 70 days' notice or prior public
disclosure of the date of the meeting is given, the notice of stockholder
proposals or nominations must be in writing and received by the Secretary
no later than the close of business on the tenth day following the day on
which notice of the meeting was mailed or public disclosure thereof was
made, whichever occurs first). The Company may reject a stockholder
proposal or nomination that is not made in accordance with such procedures.
LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT AND LIMITATIONS ON
CALLING STOCKHOLDER MEETINGS
The Certificate and Bylaws prohibit stockholder action by written
consent in lieu of a meeting and provide that stockholder action can be
taken only at an annual or special meeting of stockholders. The
Certificate and Bylaws provide that, subject to the rights of holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, special meetings of stockholders can be called only by the
Board of Directors, the Chairman of the Board of Directors or the Vice
Chairman of the Board of Directors of the Company or at the request in
writing of the holders of not less than 20 percent of all the shares
entitled to vote at the meeting.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BYLAWS
The Certificate provides that the affirmative vote of the holders of
at least 80% of the total voting power of all outstanding securities of the
Company then entitled to vote generally in the election of directors,
voting together as a single class, is required to amend certain provisions
of the Certificate, including those provisions relating to the number,
election and term of directors; the removal of directors and the filling of
vacancies; the prohibition of stockholder action without a meeting;
prohibition on cumulative voting by stockholders; indemnification of
directors, officers and others; and the super majority voting requirements
in the Certificate. The Certificate further provides that the Bylaws may
be amended by the Board of Directors or by an affirmative vote of the
holders of not less than a majority of the total voting power of all outstanding
securities of the Company then entitled to vote generally in the election
of directors, voting together as a single class. These voting requirements
will have the effect of making more difficult any amendment by
stockholders, even if a majority of the Company's stockholders believes
that such amendment would be in their best interests. However, the Company
intends to amend these provisions to provide that amendments to the
Certificate and Bylaws may be made by the affirmative vote of the holders
of not less than 51% of the total voting power of all outstanding
securities of the Company then entitled to vote.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Subject to certain exclusions summarized below, Section 203 of the
Delaware General Corporation Law ("Section 203") prohibits any Interested
Stockholder from engaging in a "business combination" with a Delaware
corporation for three years following the date such person became an
Interested Stockholder. Interested Stockholder generally includes (i) any
person who is the beneficial owner of 15% or more of the outstanding voting
stock of the corporation and (ii) any person who is an affiliate or
associate of the corporation and who held 15% or more of the outstanding
voting stock of the corporation at any time within three years before the
date on which such person's status as an Interested Stockholder is
determined. Subject to certain exceptions a "business combination"
includes, among other things (i) any merger or consolidation involving the
corporation, (ii) the sale, lease, exchange, mortgage, pledge, transfer or
other disposition of assets having an aggregate market value equal to 10%
or more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market
value of all the outstanding stock of the corporation, (iii) any
transaction that results in the issuance or transfer by the corporation of
any stock of the corporation to the Interested Stockholder, except pursuant
to a transaction that effects a pro rata distribution to all stockholders
of the corporation, (iv) any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class
or series, or securities convertible into the stock of any class
-41-
<PAGE>
or series, of the corporation that is owned directly or indirectly by the
Interested Stockholder, and (v) any receipt by the Interested Stockholder
of the benefit (except proportionately as a stockholder) or any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
Section 203 does not apply to a business combination if (i) before a
person became an Interested Stockholder, the board of directors of the
corporation approved the transaction in which the Interested Stockholder
became an Interested Stockholder or the business combination, (ii) upon
consummation of the transaction that resulted in the person becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commences (other than certain excluded shares), or (iii) following a
transaction in which the person became an Interested Stockholder, the
business combination is (a) approved by the board of directors of the
corporation and (b) authorized at a regular or special meeting of
stockholders (and not by written consent) by the affirmative vote of the
holders of at least two-thirds of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate provides that a director will not be personally liable
for monetary damages to the Company or its stockholders for breach of
fiduciary duty as a director, except to the extent such exemption for
liability or limitation thereof is not permitted under the Delaware General
Corporation Law (i.e., liability (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for paying a dividend or approving a stock
repurchase in violation of Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an
improper personal benefit).
While the Certificate provides directors with protection from awards
for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Certificate will have no effect on
the availability of equitable remedies, such as an injunction or rescission
based on a director's breach of such director's duty of care. The
provisions of the Certificate described above apply to an officer of the
Company only if such person is also a director of the Company and is acting
in his or her capacity as director, and do not apply to officers of the
Company who are not also directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate provides that each person (and the heirs, executors,
or administrators of such person) who was or is a party or is threatened to
be made a party to, or is involved in any threatened pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that such person is or was a director
or officer of the Company or is or was serving at the request of the
Company as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, will be indemnified and held harmless
by the Company to the fullest extent permitted by the Delaware General
Corporation Law. The Certificate further provides that the right to
indemnification includes the right to be paid by the Company for expenses
incurred in connection with any such proceeding in advance of its final
disposition to the fullest extent permitted by the Delaware General
Corporation Law, and that the right to indemnification conferred thereunder
is a contract right.
The Certificate further provides that the Company may, by action of
its Board of Directors, provide indemnification to such of the employees
and agents of the Company and such other persons serving at the request of
the Company as employees or agents of another corporation, partnership,
joint venture, trust or other enterprise to such extent and to such effect
as is permitted by the Delaware General Corporation Law and the Board of
Directors.
Pursuant to the Certificate, the Company has the power to purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any expense, liability or loss incurred by such person in any such capacity
or arising out of his or her status as such, whether or not the Company
would have the power to indemnify such person against such liability under
the Delaware General Corporation Law.
-42-
<PAGE>
The Certificate provides that (i) the rights and authority described
above are not exclusive of any other right that any person otherwise may
have or acquire and (ii) no amendment, modification or repeal of the
Certificate, or adoption of any additional provision of the Certificate or
the Bylaws or, to the fullest extent permitted by the Delaware General
Corporation Law, any amendment, modification or repeal of law will
eliminate or reduce the effect of the provisions in the Certificate
limiting liability or indemnifying certain persons or adversely affect any
right or protection then existing thereunder in respect of any acts or
omissions occurring prior to such amendments, modification, repeal or
adoption.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
-43-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering (and assuming no exercise of the
Representative's over-allotment option), the Company will have outstanding
3,495,482 shares of Common Stock (excluding the shares of Common Stock
issuable upon exercise of the Warrants and underlying the Representative's
Warrants). Of such shares, the 1,000,000 shares sold in this offering
together with the Warrants (plus any additional shares sold upon the
Representative's exercise of its over-allotment option) will be freely
tradeable without restriction or further registration under the Securities Act,
except for any shares held by an "affiliate" of the Company, as that term is
defined under the Securities Act and the Regulations promulgated thereunder,
which will be subject to the resale limitations of Rule 144 promulgated under
the Securities Act ("Rule 144"). In addition, 1,895,480 shares that will be
outstanding upon consummation of this offering have been issued and sold by the
Company in reliance on one or more exemptions from the registration requirements
of the Securities Act and will be "restricted securities" within the meaning of
Rule 144 ("Restricted Shares") and, therefore, may be publicly sold only if
subsequently registered under the Securities Act or pursuant to Rule 144.
Of those shares, 947,740 have been held for the minimum two year period required
by Rule 144 and are eligible for public sale pursuant to Rule 144. The two-year
holding period will expire with respect to half of the remaining 947,740 shares
in January 1997 and with respect to the remainder in July 1997. Notwithstanding
the foregoing, the Restricted Shares are subject to the lock-up agreements
described below. The Registration Statement also includes (i) 600,002 shares
on behalf of certain stockholders and (ii) 500,000 shares of Common Stock
underlying the Warrants offered hereby (plus up to an additional 225,000 shares
depending upon the extent to which the Representative's over-allotment option
is exercised) all of which will be similarly freely tradeable.
In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated with those of others), including any
person who may be deemed an "affiliate" of the Company, as that term is
defined in Rule 144, would be entitled to sell in brokers' transactions or
directly to market makers within any three-month period a number of
Restricted Shares that does not exceed the greater of (i) 1% of the class
of such shares then outstanding (34,955 shares of Common Stock based on the
number of shares to be outstanding after consummation of this offering) or
(ii) the average weekly trading volume of the class of such shares in the
over-the-counter market during the four calendar weeks preceding the date
on which notice of such sale is filed with the Commission, provided that
certain current public information concerning the Company is then
available, the seller complies with certain manner of sale provisions and
notice requirements, and that at least two years have elapsed since the
Restricted Shares were fully paid for and acquired by any person from the
Company or an affiliate of the Company. A person (or persons whose shares
are aggregated with those of others) who is not an affiliate of the Company
at any time during the three months preceding any sale by such person,
would be entitled to sell such shares, under Rule 144(k), without regard to
the limitations described above, provided that at least three years have
elapsed since the Restricted Shares were fully paid for and acquired by any
person form the Company or an affiliate of the Company. The above is a
summary of Rule 144 and is not intended to be a complete description
thereof or of the rights of the parties to sell shares of Common Stock
thereunder.
Upon consummation of this offering, there will be outstanding options
to purchase 100,000 shares of Common Stock, which vest on various dates
commencing January 1996. Upon exercise of these options, all of such
shares will be eligible for sale to the public in the open market under
Rule 701 promulgated under the Securities Act ("Rule 701") (assuming 90 days
have elapsed after the effective date of this Prospectus). See "Management --
1996 Stock Option Plan."
In general, under Rule 701 as currently in effect, absent contractual
restrictions on transfer, any employee, officer, director, consultant or
advisor of the Company who purchases shares from the Company pursuant to a
written compensatory stock option or other benefit plan or written contract
relating to compensation is eligible to resell such shares 90 days after
the effective date of this offering in reliance upon Rule 144, but without
compliance with certain restrictions contained in Rule 144. Shares
acquired pursuant to Rule 701 may be sold by non-affiliates without regard
to the holding period, volume limitations, information or notice
requirements of Rule 144, and by affiliates without regard to the holding
period requirement.
Including the outstanding options to purchase 100,000 shares of Common
Stock, the Company has reserved for issuance an aggregate of 225,000 shares
of Common Stock pursuant to its 1996 Stock Option Plan. The Company
may elect to register on a Form S-8 Registration Statement under the Securities
Act Common Stock subject to options issued after the effective date of the Form
S-8 Registration Statement. Shares covered by such a registration statement
would be eligible for sale in the public market after
-44-
<PAGE>
the effective date thereof, subject to Rule 144 limitations applicable to
affiliates and subject to the lock-up agreements described below. See
"Management -- 1996 Stock Option Plan."
The Company is unable to estimate the amount, timing or nature of
future sales of outstanding Common Stock. Prior to this offering, there
has been no market for the Common Stock and no predictions can be made of
the effect, if any, that market sales of shares or the availability of
shares for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the Common Stock in the
public market may have an adverse effect on the market price thereof, and
could impair the Company's ability to raise capital through the sale of its
equity securities. See "Risk Factors -- No Assurance of Public Market;
Arbitrarily Determined Offering Price."
LOCK-UP AGREEMENTS
Messrs. Centner, Cleek, de Ganon and Szollose own an aggregate of
1,895,480 shares of Common Stock and options to purchase an additional
75,000 shares of Common Stock and have agreed not to directly or indirectly
sell, assign, transfer, encumber, contract to sell, grant an option to
purchase or otherwise dispose of any shares of Common Stock or any other
security convertible into or exchangeable for shares of Common Stock which
they beneficially own for a period of 24 months after the date of this
Prospectus without the prior written consent of the Representative. In
addition, the purchasers of Common Stock in the Private Placements have
agreed not to directly or indirectly sell, assign, transfer, encumber,
contract to sell, grant an option to purchase or otherwise dispose of any
of that Common Stock for a period of six months after the date of this
Prospectus without the prior written consent of the Representative, which
consent will not be unreasonably withheld.
-45-
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Donald & Co. Securities Inc. is
acting as representative (the "Representative"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement, to
purchase from the Company a total of 1,000,000 Shares of Common Stock and
1,000,000 Warrants. The number of Shares and Warrants which each Underwriter
has agreed to purchase is set forth opposite its name:
<TABLE><CAPTION>
Underwriter Number of
-----------------------------
Shares Warrants
<S> <C> <C>
Donald & Co. Securities Inc. . . . . . . . . . . . .
---------- ----------
Total 1,000,000 1,000,000
========== ==========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to approval of certain legal matters by counsel to
the Underwriters and various other conditions precedent, and that the
Underwriters are obligated to purchase all of the securities offered by this
Prospectus (other than securities covered by the over-allotment option described
below), if any are purchased.
The Company has been advised by the Representative that the
Underwriters propose to offer the securities to the public at the initial
offering prices set forth on the cover page of this Prospectus and to
certain dealers (who may include Underwriters) at those prices less an aggregate
concession not in excess of $_____ per share and per Warrant. The Underwriters
may allow, and such dealers may reallow, an aggregate concession not in excess
of $____ per share and per Warrant to certain other dealers. After the initial
public offering, the offering prices and other selling terms may be changed by
the Representative.
The Representative has informed the Company that the Underwriters do
not intend to confirm sales to accounts over which they exercise
discretionary authority.
The Company has granted to the Representative an option, exercisable
during the 30-day period after the date of this Prospectus, to purchase
from the Company at the offering price, less underwriting discounts and the
non-accountable expense allowance, up to an aggregate of 150,000 additional
shares of Common Stock and 150,000 Warrents for the sole purpose of covering
over-allotments, if any.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liability under the Securities Act.
The Company has also agreed to pay to the Representative an expense
allowance on a nonaccountable basis equal to 3% of the gross proceeds
derived from the sale of the securities underwritten (including the sale of any
securities subject to the Representative's overallotment option), $ 25,000 of
which has been paid to date.
The Company has granted the Representative for a period of three years
from the date hereof the right to have the Representative's designee present at
all meetings of the Company's Board of Directors and each of its committees.
Such designee will be entitled to the same notices and communications sent by
the Company to its directors and to attend directors' and committees' meetings,
but will not be entitled to vote thereat. Such designee will also be entitled
to receive the same compensation payable to directors as members of the Board
and its committees and all reasonable expenses in attending such meetings. The
Representative has not named such designee as of the date of this Prospectus.
In connection with this offering, the Company has agreed to sell to
the Representative, for nominal consideration, the right to purchase up to
an aggregate of 100,000 shares of Common Stock and 100,000 Warrants (the
"Representative's Warrants"). The Representative's Warrants are exercisable
initially at $____ per share of Common Stock and $_____ per Warrant (together,
the "Exercise Price") for a period of four years commencing one year from the
date hereof. The Representative's
-46-
<PAGE>
Warrants contain anti-dilution provisions providing for adjustment of the
Exercise Price upon the occurrence of certain events, including any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. In addition, the Representative's
Warrants grant to the holders thereof certain "piggy back" and demand
registration rights for periods of six and four years, respectively,
commencing one year from the date of this Prospectus with respect to the
registration under the Securities Act of the securities directly and
indirectly issuable upon exercise of the Representative's Warrants.
Prior to this offering there has been no public market for any of the
Company's securities. Accordingly, the initial public offering prices of
the securities offered hereby was determined by negotiation between the Company
and the Representative. Factors considered in determining such price, in
addition to prevailing market conditions, included the history of and the
prospects for the industry in which the Company competes, an assessment of
the Company's management, the prospects of the Company, its capital
structure and such other factors as were deemed relevant.
In addition, subject to the rules of the National Association of
Securities Dealers, Inc. ("NASD"), the Company has agreed to appoint the
Representative as warrant solicitation agent 13 months after the date of
this Prospectus, for which it will be entitled to a 5% fee upon exercise of
the Warrants solicited by the Representative. No solicitation fee shall be
paid in connection with the exercise of the Representative's Warrants or the
warrants included in the Representative's Warrants. In accordance with the
NASD Notice to Members 81-83, no fee shall be paid: (i) upon exercise where
the market price of the underlying Common Stock is lower than the exercise
price; (ii) for the exercise of Warrants held in any discretionary account;
(iii) upon the exercise of the Warrants where disclosure of compensation
arrangements has not been made in documents provided to customers both as part
of the original offering and at the time of exercise; or (iv) unless the
Representative has been designated in writing by the holder of the Warrant
as having solicited the exercise of the Warrant. Unless granted an exemption
by the Commission from its rule 10b-6, the Representative's and any soliciting
broker-dealers will be prohibited from engaging in any market making
activities or solicited brokerage activities with regard to the Company's
securities for the period from two or nine days, whichever is applicable,
prior to any solicitation of the exercise of Warrants until the later of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Representative and soliciting broker-dealers
may have to receive a fee for the exercise of Warrants following such
solicitation. As a result, the Representative and soliciting broker-dealers
may be unable to continue to provide a market for the Company's securities
during certain periods while the Warrants are exercisable. If the
Representative has engaged in any of the activities prohibited by Rule 10b-6
during the periods described above, the Representative undertakes to waive
unconditionally its right to receive a commission on the exercise of such
Warrants.
The Company has agreed that, upon consummation of this offering, it
will enter into a two year financial consulting agreement with the
Representative pursuant to which the Representative will provide the
Company with investment banking and financial consulting services at a fee
of $60,000; $30,000 payable upon consummation of this offering and $2,500
per month for the first twelve months subsequent to the consummation of
this offering. Such services will include consulting with the Company's
management with respect to, among other matters, stockholder relations,
corporate expansion and long term financial planning.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Sills Cummis Zuckerman Radin Tischman Epstein & Gross, P.A., Newark,
New Jersey. Parker Duryee Rosoff & Haft, New York, New York has acted as
counsel for the Underwriters in connection with this offering.
EXPERTS
The audited financial statements included in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP,
independent certified public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
-47-
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form SB-2 (the "Registration
Statement") under the Act with respect to the securities offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules filed therewith,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the securities offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any
contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being deemed to be qualified in its entirety by such reference.
The Registration Statement, including all exhibits and schedules thereto,
may be inspected without charge at the principal office of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices
of the Commission located at 7 World Trade Center, New York, New York 10048
and 500 West Madison Street, Chicago, Illinois 60661-2511, and copies of
all or any part thereof may be obtained from such offices, upon the payment
of proscribed fees.
The Company is not currently a reporting company under the Securities
Exchange Act of 1934, as amended. The Company intends to furnish its
stockholders with annual reports containing audited financial statements
together with an opinion on such statements expressed by independent public
accountants and quarterly reports for the first three quarters of each
fiscal year containing certain unaudited condensed consolidated financial
information.
-48-
<PAGE>
GLOSSARY
GUI: Graphic user interface. A means of communicating
with a computer by manipulating icons and windows
rather than using text commands.
html: Hypertext markup language. The computer language
in which electronic information is published on
the Web.
http: Hypertext transfer protocol. The standard
communications protocol used on the Web to
retrieve information on the Web. Hypertext
transfer protocol makes browsing possible; the
user clicks on hypertext links in a Web document
and moves within that document or to another
document that may be located on a different
computer.
hypertext links: Data in a Web site that links to other data within
that Web site or to other unrelated Web sites,
allowing movement through information on the Web
non-sequentially.
Internet: An open global network of interconnected
commercial, educational and government computer
networks that allows any interconnected computer
to communicate with any other interconnected
computer utilizing a common communications
protocol, TCP/IP.
Protocol: A formal description of message formats and the
rules two or more machines must follow in order to
exchange such messages.
Server: Software that allows a computer to offer a service
to another computer. Other computers contact the
server program by means of matching client
software. In addition, such term means the
computer on which server software runs.
TCP/IP: Transmission Control Protocol/Internet Protocol.
A compilation of network and transport-level
protocols that allow computers with different
architectures and operating system software to
communicate with other computers on the Internet.
World Wide Web or
the Web: The world wide network of computer servers that
uses a special communications protocol (i.e.,
http) that links different servers throughout the
Internet and enables non-technical users to access
graphic information, including video, photographs,
audio and text therein contained.
-49-
<PAGE>
K2 DESIGN, INC.
--------------
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of
December 31, 1995 and March 31, 1996 F-3
Consolidated Statements of Operations for the
years ended December 31, 1994 and 1995 and for
the three months ended March 31, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended December 31, 1994
and 1995 and for the three months ended March 31, 1996 F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1994 and 1995 and for
the three months ended March 31, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To K2 Design, Inc.:
We have audited the accompanying consolidated balance sheet of K2 Design, Inc.
(a Delaware corporation) and subsidiary as of December 31, 1995, and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the years ended December 31, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of K2 Design, Inc. and subsidiary
as of December 31, 1995, and the results of their operations and their cash
flows for the years ended December 31, 1995 and 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
May 9, 1996
F-2
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE><CAPTION>
December 31, March 31,
ASSETS 1995 1996
------ ------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $17,756 $52,268
Accounts receivable (net of allowance for doubtful
accounts of $10,000) 133,694 318,105
Prepaid and deferred expenses 0 49,725
-------- --------
Total current assets 151,450 420,098
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net (Note 3) 67,603 104,671
RESTRICTED CASH (Note 2) 0 30,000
OTHER ASSETS 4,405 4,405
-------- --------
Total assets $223,458 $559,174
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of debt and capital lease obligations (Note 4) $45,770 $55,708
Accounts payable 94,940 222,342
Accrued professional fees 22,000 23,931
Accrued compensation 23,952 51,431
Accrued taxes 3,727 15,394
Other accrued expenses 8,210 22,434
Customer advances (Note 2) 29,857 52,330
-------- --------
Total current liabilities 228,456 443,570
LONG-TERM LINE OF CREDIT AND CAPITAL LEASE
OBLIGATIONS (Note 4) 26,527 46,382
-------- --------
Total liabilities 254,983 489,952
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT) (Note 8):
Preferred stock, $.01 par value, 1,000,000 shares authorized;
0 shares issued and outstanding 0 0
Common stock, $.01 par value, 9,000,000 shares authorized;
1,895,480 and 2,095,480 shares issued and outstanding,
respectively 18,955 20,955
Additional paid-in capital (62,376) 170,995
Retained earnings (deficit) 11,896 (122,728)
-------- --------
Total stockholders' equity (deficit) (31,525) 69,222
-------- --------
Total liabilities and stockholders' equity (deficit) $223,458 $559,174
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
</TABLE>
F-3
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE><CAPTION>
Years Ended Three Months Ended
December 31 March 31
---------------------------------------------------
1994 1995 1995 1996
-------- ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES $249,379 $1,196,208 $33,639 $512,434
DIRECT SALARIES AND COSTS 215,865 957,027 68,152 499,109
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 73,601 200,931 12,449 125,958
DEPRECIATION 13,013 24,485 4,779 9,113
---------- --------- ---------- ----------
Income (loss) from operations (53,100) 13,765 (51,741) (121,746)
INTEREST EXPENSE, net 0 869 319 982
---------- --------- ---------- ----------
Income (loss) before provision
for income taxes (53,100) 12,896 (52,060) (122,728)
PROVISION FOR INCOME TAXES 0 1,000 0 0
---------- --------- ---------- ----------
Net income (loss) ($53,100) $11,896 ($52,060) ($122,728)
========== ========= ========== ==========
PRO FORMA NET INCOME (LOSS) DATA
(UNAUDITED) (Notes 2 and 6):
Income (loss) before provision for
income taxes, as reported (53,100) 12,896 (52,060) (122,728)
Pro forma income tax provision (actual
for period subsequent to January 16, 1996) 0 0 0 0
---------- --------- ---------- ----------
Pro forma net income (loss ) ($53,100) $12,896 ($52,060) ($122,728)
========== ========= ========== ==========
PRO FORMA NET INCOME (LOSS) PER
COMMON SHARE OUTSTANDING $.01 ($.06)
========= ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 1,946,373 2,013,040
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
<TABLE><CAPTION>
K2 DESIGN, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------
Common Stock
---------------------- Additional Retained
Number Partner's Paid-in Earnings
of Shares Amount Capital Capital (Deficit) Total
--------- ------ --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 0 $0 $13,231 $0 $0 $13,231
Partner draws 0 0 (38,552) 0 0 (38,552)
Net loss 0 0 (53,100) 0 0 (53,100)
---- ---- -------- ---- ---- --------
BALANCE, December 31, 1994 0 0 (78,421) 0 0 (78,421)
Termination of partnership
and capital contribution
to S Corporation 75 0 78,421 (78,421) 0 0
Issuance of common stock 25 0 0 10,000 0 10,000
Capital contribution (Note 8) 0 0 0 25,000 0 25,000
Corporate recapitalization
(Note 8) 1,895,380 18,955 0 (18,955) 0 0
Net income 0 0 0 0 11,896 11,896
--------- ------ -------- -------- ------ --------
BALANCE, December 31, 1995 1,895,480 18,955 0 (62,376) 11,896 (31,525)
Termination of S Corporation 0 0 0 11,896 (11,896) 0
Issuance of common stock 200,000 2,000 0 221,475 0 223,475
Net loss 0 0 0 0 (122,728) (122,728)
BALANCE, March 31, 1996 --------- ------- -------- -------- ---------- ---------
(unaudited) 2,095,480 $20,955 $0 $170,995 ($122,728) $69,222
========= ======= ======== ======== ========== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE><CAPTION>
Years Ended Three Months Ended
December 31 March 31
---------------------------------------------------
1994 1995 1995 1996
-------- ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($53,100) $11,896 ($52,060) ($122,728)
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation 13,013 24,485 4,779 9,113
Changes in-
Accounts receivable (18,983) (114,711) (8,905) (184,411)
Prepaid and deferred expenses 0 0 0 (49,725)
Restricted cash 0 0 0 (30,000)
Other assets 0 (2,530) (500) 0
Accounts payable 21,730 73,210 10,300 127,402
Accrued professional fees 2,500 19,500 2,375 1,931
Accrued compensation 80,000 (56,048) 8,095 27,479
Accrued taxes 0 3,727 0 11,667
Other accrued expenses 0 8,210 0 14,224
Customer advances 0 29,857 30,360 22,473
-------- --------- -------- ---------
Net cash (used in) provided by
operating activities 45,160 (2,404) (5,556) (172,575)
-------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchase of equipment (1,184) (17,553) (3,185) (7,246)
-------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 0 10,000 10,000 223,475
Capital contribution 0 25,000 0 0
Partner draws (38,552) 0 0 0
Principal payments on capital lease obligations (4,233) (35,613) (4,585) (8,150)
Proceeds from note payable 0 25,000 0 0
Proceeds from line of credit 0 10,000 0 0
Payments on line of credit 0 0 0 (992)
-------- --------- -------- ---------
Net cash provided by (used in)
financing activities (42,785) 34,387 5,415 214,333
-------- --------- -------- ---------
Net increase (decrease) in cash 1,191 14,430 (3,326) 34,512
CASH, beginning of period 2,135 3,326 3,326 17,756
-------- --------- -------- ---------
CASH, end of period $3,326 $17,756 $0 $52,268
======== ========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for-
Interest $0 $869 $319 $684
State income taxes 0 1,074 0 10,505
======== ========= ======== =========
SUPPLEMENTAL DISCLOSURES OF
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Assets acquired under
capital lease obligations $10,767 $54,136 $16,690 $38,935
======== ========= ======== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
K2 DESIGN, INC. AND SUBSIDIARY
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) ORGANIZATION AND BUSINESS:
-------------------------
K2 Design, Inc. and subsidiary ("K2" or the "Company") commenced operations
on March 1, 1993 as a partnership. In January 1995 the Partnership
contributed its capital into a newly formed corporation and elected S
Corporation status. Effective January, 1996, the Company was reorganized as
a Delaware holding C Corporation having a wholly-owned operating subsidiary
in New York.
K2 is a full service interactive communications, design and technology
company, engaged primarily in the business of designing and creating Web
sites on the Internet. The Company also provides various other information
delivery services. The Company initially operated a traditional graphic
design business upon its founding in 1993, but shifted its principal
business to Web site creation and design at the beginning of 1995. The
Company's customers are primarily U.S.-based corporations operating in a
wide variety of industries.
The accompanying unaudited financial statements as of March 31, 1996 and
for the three months ended March 31, 1996 and 1995 have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and note disclosures
normally included in financial statements prepared in conformity with
generally accepted accounting principles have been condensed or omitted. In
the opinion of the Company, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and changes in cash flows for the periods presented
have been made.
(2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
----------------------
Use of Estimates in the
Preparation of Financial Statements-
- ------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
Revenue Recognition-
- --------------------
Web site creation and design contracts are generally completed within six
to eight weeks. Revenue is recognized on the completed contract method on
an individual contract basis. Contract costs include all direct labor costs
and other direct costs related to contract performance, such as freelance
labor, supplies, printing, and equipment costs. Customer advances include
billings in excess of costs on uncompleted contracts. Provisions for any
estimated losses on uncompleted contracts are made in the period in which
such losses are determinable.
A portion of the Company's revenues has been generated on a fixed fee for
service basis.
Equipment and Leasehold Improvements-
- -------------------------------------
Equipment and leasehold improvements are carried at cost and depreciated
using the straight-line method over their estimated useful lives. Leasehold
improvements are amortized over the shorter of their estimated useful lives
or the term of the underlying lease.
Estimated useful lives by class of assets are as follows-
Computers and equipment 3 years
Furniture and fixtures 5 years
Leasehold improvements Life of lease
Assets purchased with capital leases are depreciated over their estimated
useful lives.
Fair Value of Financial Instruments-
- ------------------------------------
The carrying amounts of the Company's cash, accounts receivable, accounts
payable and debt approximate fair market value based upon the relatively
short-term nature of these financial instruments.
Concentration of Credit-
- ------------------------
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of trade accounts
receivable. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral from
its customers. The Company's sales to its largest customer for the year
ended December 31, 1994 constituted 44% of revenue. The Company's sales to
its three largest customers constituted approximately 18%, 15% and 12% for
the year ended December 31, 1995. The Company's sales to its largest
customer constituted approximately $313,000 for the three months ended
March 31, 1996 (unaudited). The Company had accounts receivable from these
customers amounting to $66,571 and $144,582 at December 31, 1995 and March
31, 1996 (unaudited), respectively.
F-8
<PAGE>
Income Taxes-
- -------------
As discussed in Note 1, the Company operated as a partnership during the
year ended December 31, 1994. As a result, the partners were individually
liable for federal and state income taxes on the Company's taxable income.
Effective January 1995, the Company elected to be treated as an S
Corporation for Federal income tax purposes. As a result, the shareholders
are individually liable for Federal income tax on the Company's taxable
income. The Company was subject to New York State and City income taxes.
Effective January 16, 1996, the Company was reorganized as a Delaware
holding C Corporation having a wholly-owned subsidiary in New York.
The Company provides federal and state income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled.
Pro Forma Net Income (Loss) Per Common Share-
- ---------------------------------------------
Pro forma net income (loss) per common share has been computed by dividing
pro forma net income (loss) by the number of common shares outstanding. As
required by the Securities and Exchange Commission rules, all warrants,
options and shares issued within one year of the public offering at less
than the public offering price (see Note 8) are assumed to be outstanding
for each year presented for purposes of the per share calculation.
Stock Based Compensation-
- -------------------------
The Financial Accounting Standards Board has issued a new standard,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires
that an entity account for employee stock compensation under a fair value
based method. However, SFAS 123 also allows an entity to continue to
measure compensation cost for employee stock-based compensation using the
intrinsic value based method of accounting prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees" ("Opinion 25"). Entities
electing to remain with the accounting under Opinion 25 are required to
make pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting under SFAS 123 had been applied. The
Company will adopt the disclosure requirements of SFAS 123 during 1996.
Restricted Cash-
- ----------------
Restricted cash represents a certificate of deposit, which matures in
April 1997, assigned as a security deposit for the Company's new
office space.
F-9
<PAGE>
(3) EQUIPMENT AND
LEASEHOLD IMPROVEMENTS:
-----------------------
Equipment and leasehold improvements, at cost, including capital leases
(Note 5), summarized by major categories, consist of the following-
December 31, March 31,
1995 1996
--------------- -------------
(unaudited)
Computers and equipment $86,588 $125,523
Furniture and fixtures 6,098 6,098
Leasehold improvements 6,193 13,439
--------- --------
98,879 145,060
Less- Accumulated depreciation 31,276 40,389
--------- --------
Equipment and leasehold
improvements, net $67,603 $104,671
========= ========
(4) NOTE PAYABLE, LINE OF CREDIT
AND CAPITAL LEASE OBLIGATIONS:
------------------------------
December 31, March 31,
1995 1996
--------------- -------------
(Unaudited)
Note payable to Republic National Bank
dated October 10, 1995, bearing interest
at prime + 2%, due October 10, 1996 $25,000 $25,000
Chemical Bank $10,000 line of credit
dated November 1, 1995, bearing interest
at prime + 3% payable in 36 equal monthly
installments 10,000 9,008
Capital lease obligations (Note 5) 37,297 68,082
--------- --------
72,297 102,090
Less- Current maturities 45,770 55,708
--------- --------
$26,527 $46,382
========= ========
The note payable to Republic National Bank is personally guaranteed by the
stockholders of the Company. The interest rates on the note payable and line of
credit at December 31, 1995 were 10.75% and 11.75%, respectively.
Future principal payments on debt at December 31, 1995 are as follows-
1996 $45,770
1997 14,531
1998 9,990
1999 1,719
2000 287
-------
$72,297
=======
F-10
<PAGE>
Interest expense for the years ended December 31, 1994 and 1995 and the three
months ended March 31, 1995 and 1996 (unaudited) amounted to $0 and $939, $319
and $982, respectively.
(5) CAPITAL LEASE OBLIGATIONS:
--------------------------
The Company is a lessee in noncancelable leasing agreements for certain
computers and equipment. Future minimum lease payments are as follows-
December 31, March 31,
1995 1996
------------ ----------
(unaudited)
1996 $22,972 $28,118
1997 15,284 31,457
1998 9,174 25,347
1999 2,493 5,426
2000 415 415
------- -------
Total minimum lease payments 50,338 90,763
Less- Imputed interest (13,041) (22,681)
------- -------
Capital lease obligation $37,297 $68,082
======= =======
(6) PRO FORMA INCOME TAXES (Unaudited):
As described in Note 2, the Company previously elected "S" corporation status
under the provisions of the Internal Revenue Code. In January, 1996 the Company
reorganized as a Delaware Holding C Corporation in contemplation of the initial
public offering.
The following unaudited pro forma information has been determined based upon the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS 109). This information reflects income tax expense that
the Company would have incurred had it been subject to Federal and state income
taxes. The Company would not have a Federal and state income tax provision
because of net operating loss carryforwards for all periods presented.
On a pro forma basis, the Company would have net operating loss carryforwards
of approximately $40,000 as of December 31, 1995. On a pro forma basis, the
Company would have recorded a deferred tax asset and related valuation
allowance associated with these carryforwards of approximately $16,000. The
valuation allowance would have been recorded due to the uncertainty of the
realization of the asset.
At March 31, 1996, the Company had net operating loss carryforwards of
approximately $120,000 which expire in 2011. The Company has recorded a
deferred tax asset of approximately $45,000 related to the loss carryforward
and a corresponding valuation allowance due to the uncertainty of the
realization of the asset.
The pro forma income tax provision (benefit) differs from the amounts computed
by applying the Federal statutory rate of 34% to (loss) income before taxes as
follows-
December 31 March 31
---------------------- ---------------------
1994 1995 1995 1996
---------------------- ---------------------
(unaudited)
Tax provision (benefit) at
the statutory rate ($18,054) $4,385 ($17,700) ($41,728)
State income taxes, net
of Federal benefit (3,186) 774 (3,124) (7,364)
Operating loss carryforward 21,240 (5,159) 20,824 49,092
------- ------- ------- -------
$0 $0 $0 $0
======= ======= ======= =======
F-11
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES:
------------------------------
The Company is located at 80 East 11th Street, New York, New York. The
Company's lease expires on February 29, 1996, after which time the Company
plans to renew its lease from month to month at the present rate until such
time as the Company moves to its new space, expected to occur by June 30,
1996. At December 31, 1995, future minimum rental payments for the
year ending December 31, 1996 is $6,450.
Rental expense charged to selling, general and administrative expenses for
the years ended December 31, 1994 and 1995 and the three months ended March
31, 1995 and 1996 (unaudited) amounted to $8,859, $29,150, $4,800 and
$10,150, respectively.
Lease Agreement-
- ----------------
The Company has entered into a five year lease agreement to expire on April
30, 2001, for new office space at 55 Broad Street, New York, New York. At
December 31, 1995, future minimum rental payments anticipated under this
lease are as follows-
1996 $63,381
1997 95,071
1998 95,071
1999 95,071
2000 95,071
2001 31,690
(8) STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
Common Stock
- ------------
In July 1995, the stockholders contributed 25% of their common stock to the
Company. These shares were then reissued to an officer of the Company in
settlement of a $25,000 payable due to the officer for services rendered
to the Company prior to his employment with the Company.
Corporate Reorganization-
- -------------------------
Effective January, 1996, the Company was reorganized as a Delaware holding
C corporation having a wholly owned operating subsidiary incorporated in
New York. The reorganized corporation is authorized to issue 9,000,000
shares of common stock, par value $.01 per share, and 1,000,000 shares of
Preferred Stock, par value $.01 per share. The 100 shares of common stock
of the predecessor corporation that were issued and outstanding at the date
of reorganization were exchanged for 1,895,480 shares of common stock in
the reorganized corporation. The accompanying financial statements have
been adjusted to reflect the above reorganization.
In addition, as a result of termination of the S Corporation in January
1996, the retained earnings as of that date were transferred to additional
paid in capital. At March 31, 1996 the accompanying consolidated balance
sheet and consolidated statements of stockholders' equity (deficit) has
been adjusted to reflect this termination.
1996 Stock Option Plan-
- -----------------------
Effective January 16, 1996, the Company adopted the 1996 Stock Option Plan
(the "Plan"), pursuant to which designated employees, including officers
and directors of the Company and certain outside consultants, will be
entitled to receive nonqualified stock options and qualified stock
incentive compensation. An aggregate of 225,000 shares of common stock are
available for grant under the Plan and have been reserved for this purpose.
The Plan expires on January 1, 2006. Under the terms of the Plan, the
minimum exercise price of options granted cannot be less than 100% of the
fair market value of the common stock of the Company on the option grant
date. Options granted under the Plan expire ten years after the option
grant date. For incentive stock options granted to such persons who would
be deemed to have in excess of a 10% ownership interest in the Company, the
option price shall not be less than 110% of such fair market value for all
options granted, and the options expire five years after the option grant
date. Options granted are exercisable in five equal annual installments
commencing on the option grant date.
F-12
<PAGE>
Options to purchase an aggregate of 75,000 shares of Common Stock were
granted to the four executive officers of the Company. Specifically, each
were granted options to acquire (i) 6,250 shares of Common Stock at an
exercise price of $1.75 per share, (ii) 6,250 shares of Common Stock at an
exercise price of $3.50 per share and (iii) 6,250 shares of Common Stock at
an exercise price of $6.75 per share.
In January, 1996, the Company issued an option to purchase an aggregate of
25,000 shares of common stock at an exercise price of $1.75 per share to a
consultant to the Company for services to be rendered during 1996. For
the three months ended March 31, 1996 (unaudited), the Company recorded
expense of $11,000 related to the issuance of the above option.
Private Placements-
- -------------------
Effective February 29, 1996, the Company consummated a private placement
offering in which it sold 200,000 shares of its common stock at $1.25 per
share. Effective May 9, 1996, the Company consummated a second private
placement offering in which it sold 400,002 shares of its common stock at
$1.75 per share. The Company intends to utilize the net proceeds from these
offerings of approximately $845,000 for the payment of expenses in
connection with the Proposed Public Offering, and for working capital and
general corporate purposes.
Proposed Public Offering-
- -------------------------
The Company has entered into a letter of intent (the "Letter of Intent")
with the representative of the underwriters relating to the Proposed
Public Offering, pursuant to which the underwriters would offer
1,000,000 shares of Common Stock and 1,000,000 warrants. Two warrants
will entitle the holder to purchase one share of Common Stock at an
expected exercise price equal to 125% of the public offering price of the
Common Stock. As of March 31, 1996, the Company had deferred certain
direct costs totaling approximately $22,500 incurred in connection with
its anticipated offering. Such costs will be netted against the proceeds
of the offering. See "Risk Factors" in the registration statement.
F-13
<PAGE>
No dealer, salesman or other person
has been authorized to give any
information or to make any
representations other than those
contained in this Prospectus, and,
if given or made,such information
or representations must not be
relied upon as having been
authorized by the Company or the
Underwriter. This Prospectus does 1,000,000 Shares
not constitute an offer to sell or of
a solicitation of an offer to buy Common Stock
any securities offered hereby by
anyone in any jurisdiction in which
such offer or solicitation is not
authorized or in which the person 1,000,000 Redeemable Common Stock
making such offer or solicitation Purchase Warrants
is not qualified to do so or to
anyone to whom it is unlawful to
make such offer or solicitation.
Neither the delivery of this
Prospectus nor any sale made
hereunder shall, under any
circumstances, create any
implication that there has been no K2 DESIGN, INC.
change in the affairs of the
Company since the date hereof or
that the information contained
herein is correct as of any date
subsequent to the date hereof.
------------------
__________ PROSPECTUS
------------------
Table of Contents
Page
----
Prospectus Summary . . 1
Risk Factors . . . . . 5
Use of Proceeds . . . . 14
Dilution . . . . . . . 15 DONALD & CO. SECURITIES INC.
Capitalization . . . . 17
Dividend Policy . . . . 18
Selected Financial Data . 19
Management's Discussion and
Analysis of Financial
Condition and Results
of Operations . . . . 20
Business . . . . . . . 24
Management . . . . . . 32
Principal Stockholders 34
Selling Stockholders
and Plan of
Distribution . . . . 35
Certain Transactions . 38
Description of Securities 39
Shares Eligible for
Future Sale . . . . . 44
Underwriting . . . . . 46
Legal Matters . . . . 47
Experts . . . . . . . . 47
Available Information . 48
Glossary . . . . . . . 49
Index to Financial Statements F-1
Until , 1996 (25 days
after the date of this Prospectus),
all dealers effecting transactions
in the registered securities,
whether or not participating in
this distribution, may be required
to deliver a Prospectus. This is
in addition to the obligation of
dealers to deliver a Prospectus
when acting as Underwriters and
with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24.Indemnification of Directors and Officers
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above, against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of chancery or such other court
shall deem proper.
Section 145 further provides that to the extent a director or officer
of a corporation has been successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to in subsections (a)
and (b) of Section 145, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive
of any other rights to which the indemnified party may be entitled; that
indemnification provided for by Section 145 shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of such person's heirs, executors and administrators, and empowers
the corporation to purchase and maintain insurance on behalf of a director
or officer of the corporation against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
Section 102(b)(7) of the General Corporation Law of the State of
Delaware provides that a certificate of incorporation may contain a
provision eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
II-1
<PAGE>
Article SEVENTH of the Company's Certificate of Incorporation states
that:
(a) A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except to the extent such exemption
from liability or limitation thereof is not permitted under the
Delaware General Corporation Law.
(b)(1) Each person (and the heirs, executors or administrators of
such person) who was or is a party or is threatened to be made a party
to, or is involved in any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a
director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by the Delaware General Corporation Law. The
right to indemnification conferred in this Article Seventh shall also
include the right to be paid by the Corporation the expenses incurred
in connection with any such proceeding in advance of its final
disposition to the fullest extent permitted by the Delaware General
Corporation Law. The right to indemnification conferred in this
Article Seventh shall be a contract right.
(2) The Corporation may, by action of its board of directors,
provide indemnification to such of the employees and agents of the
Corporation and such other persons serving at the request of the
Corporation as employees or agents of another corporation,
partnership, joint venture, trust or other enterprise to such extent
and to such effect as is permitted by the Delaware General Corporation
Law and the board of directors shall determine to be appropriate.
(c) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss incurred by such
person in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him
against such liability under the Delaware General Corporation Law.
(d) The rights and authority conferred in this Article Seventh
shall not be exclusive of any other right which any person may
otherwise have or hereafter acquire.
(e) No amendment, modification or repeal of this Article Seventh,
nor the adoption of any provision of this certificate of incorporation
or the bylaws of the Corporation, nor, to the fullest extent permitted
by the Delaware General Corporation Law, any amendment, modification
or repeal of law shall eliminate or reduce the effect of this Article
Seventh or adversely affect any right or protection then existing
hereunder in respect of any acts of omissions occurring prior to such
amendment, modification, repeal or adoption.
The Company also plans to provide liability insurance for its
directors and officers which is expected to provide for coverage against
loss from claims made against directors and officers in their capacity as
such, including liabilities under the Securities Act of 1933, as amended.
The Underwriting Agreement, the form of which is attached as Exhibit
1.1 hereto, contains provisions for indemnification by the Underwriter of
the Registrant and its officers, directors and controlling stockholders
against certain liabilities under the Act.
Item 25. Other Expenses of Issuance and Distribution
Expenses of the Registrant in connection with the issuance and
distribution of the securities being registered, other than underwriting
discounts and commissions, are estimated to be as follows:
II-2
<PAGE>
SEC registration fee . . . . . . . . . . . . . . . $7,329
NASD filing fee . . . . . . . . . . . . . . . . . *
NASDAQ listing fee . . . . . . . . . . . . . . . . *
Boston Stock Exchange Listing Fee . . . . . . . . *
State Securities Laws (Blue Sky) fees and expenses *
Printing and engraving expenses . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . *
Transfer Agent and registrar . . . . . . . . . . *
Premiums for directors and officers insurance . . *
Non-accountable expense allowance . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . *
=======
TOTAL . . . . . . . . . . . . . . . . . $ *
=======
* To be filed by amendment.
The registrant will bear all expenses shown above.
Item 26. Recent Sales of Unregistered Securities
The Registrant was formed in January 1996 by the then-existing
stockholders of K2 Design, Inc., a New York corporation (the
"Predecessor"). In connection with the formation of the Registrant, such
stockholders each exchanged all of their shares of the Predecessor's common
stock, which constituted all of the outstanding capital stock of the
Predecessor, for 473,870 shares of the Registrant's common stock, 1,895,480
such shares in the aggregate. This exchange was not a sale as defined by
Section 2(3) of the Act and was, accordingly, exempt from the registration
requirements of the Act.
In March 1996, the Company consummated a private placement in which it
sold 200,000 shares of Common Stock for an aggregate of $250,000 and in May
1996, the Company consummated a second private placement in which it sold
an additional 400,002 shares of Common Stock for an aggregate of $700,000.
Only accredited investors purchased Common Stock in these private
placements. With respect to the private placements, Donald & Co. Securities Inc.
acted as Placement Agent and received $47,000 in commissions and $9,500 in
non-accountable expenses. In connection with these sales, the Registrant
relied on the exemption from registration provided by Section 4(2) of the Act
and Regulation D and Rule 506 thereunder.
Exhibit
Number Description
------ -----------
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Incorporation of the Registrant*
3.2 -- By-Laws of the Registrant*
4.1 -- Form of Common Stock Certificate**
4.2 -- Form of Warrant Certificate**
4.3 -- Form of Representative's Warrant Agreement**
4.4 -- Form of Warrant Agreement by and between Continental Stock
Transfer & Trust Company and the Registrant**
II-3
<PAGE>
Exhibit
Description
-----------
Number
------
4.5 -- Form of Voting Agreement among Messrs. Centner, de
Ganon, Cleek and Szollose**
5.1 -- Opinion of Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.**
10.1 -- 1996 Stock Option Plan and Rules Relating
thereto*
10.2 -- Consulting Agreement with Harvey Berlent**
10.3 -- Form of Employment Agreement with David J. Centner**
10.4 -- Form of Employment Agreement with Matthew G. de Ganon**
10.5 -- Form of Employment Agreement with Bradley K. Szollose**
10.6 -- Form of Employment Agreement with Douglas E. Cleek**
10.7 -- Agreement of Lease*
10.8 -- Form of Financial Consulting Agreement**
21.1 -- Subsidiary List**
23.1 -- Consent of Arthur Andersen LLP***
23.2 -- Consent of Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A. (contained in
Exhibit 5.1)**
23.3 -- Consent of James A. Favia**
23.4 -- Consent of Steven N. Goldstein**
24.1 -- Powers of Attorney to sign Registration
Statement (set forth on page II-6)*
* Previously filed.
** Filed herewith.
*** Previously Filed and Filed Herewith
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
to file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the Act;
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statements; Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities (if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b)) if, in the aggregate, the
changes in volume and price represent no more than a 20% charge in the maximum
aggregate offerings paid set forth in the "Calculation Registration fee" table
in the effective registration statements; and
(iii) include any additional or changed material information on
the plan of distribution.
to, for determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered, and
the offering of the securities at the time to be the initial bona fide
offering and
to file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering and
that, insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of
II-4
<PAGE>
the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person of the
Registrant in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue and
to provide the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser, and
that for determining liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration
statement in reliance on Rule 430A and contained in a form of prospectus
filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under the
Act as part of this registration statement as of the time the Commission
declared it effective, and
that for determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in
the City of New York, State of New York, on June 27, 1996.
K2 DESIGN, INC.
By: /s/ David J. Centner
-------------------------------------
David J. Centner, Chairman
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ David J. Centner Chairman (principal June 27, 1996
--------------------------- executive officer),
David J. Centner Chief Financial Officer
(principal financial and
accounting officer) and
Director
/s/ Matthew G. de Ganon Director June 27, 1996
---------------------------
Matthew G. de Ganon
* Director June 27, 1996
---------------------------
Bradley K. Szollose
* Director June 27, 1996
---------------------------
Douglas E. Cleek
* By /s/ Matthew G. de Ganon June 27, 1996
---------------------------
Matthew G. de Ganon
Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE><CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Incorporation of the Registrant*
3.2 -- By-Laws of the Registrant*
4.1 -- Form of Common Stock Certificate**
4.2 -- Form of Warrant Certificate**
4.3 -- Form of Representative's Warrant Agreement**
4.4 -- Form of Warrant Agreement by and between Continental
Stock Transfer & Trust Company and the Registrant**
4.5 -- Form of Voting Agreement among Messrs. Centner, de
Ganon, Cleek and Szollose**
5.1 -- Opinion of Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.**
10.1 -- 1996 Stock Option Plan and Rules Relating
thereto*
10.2 -- Consulting Agreement with Harvey Berlent**
10.3 -- Form of Employment Agreement with David J. Centner**
10.4 -- Form of Employment Agreement with Matthew de Ganon**
10.5 -- Form of Employment Agreement with Bradley K. Szollose**
10.6 -- Form of Employment Agreement with Douglas E. Cleek**
10.7 -- Agreement of Lease*
10.8 -- Form of Financial Consulting Agreement**
21.1 -- Subsidiary List**
23.1 -- Consent of Arthur Andersen LLP***
23.2 -- Consent of Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A. (contained in
Exhibit 5.1)**
23.3 -- Consent of James A. Favia**
23.4 -- Consent of Steven N. Goldstein**
24.1 -- Powers of Attorney to sign Registration
Statement (set forth on page II-6)*
- -----------------
* Previously Filed
** Filed Herewith
*** Previously Filed and Filed Herewith
</TABLE>
Exhibit 4.1
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
[LOGO]
K2 DESIGN, INC. COMMON STOCK
$.01 PAR VALUE
CUSIP 482731 10 6
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
$.01 PAR VALUE, OF
K2 Design, Inc. transferable upon the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of
this certificate properly endorsed. This certificate and the shares
represented hereby are subject to the laws of the State of Delaware and
to the Certificate of Incorporation and the By-laws of the Corporation as
from time to time amended.
This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
IN WITNESS WHEREOF, K2 Design, Inc. has caused its facsimile
corporate seal and the facsimile signatures of its duly authorized officers
to be hereunto affixed.
Dated:
[SEAL]
/s/ /s/
- ----------------------- --------------------
SECRETARY CHAIRMAN
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, NJ)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation is authorized to issue more than one class or series of stock.
Upon written request the corporation will furnish without charge to each
stockholder a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM
TEN ENT
JT TEN
- -- as tenants in common
- -- as tenants by the entireties
- -- as joint tenants with right of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list.
UNIF GIFT MIN ACT
Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act
--------------------
(State)
For value received _______, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and apoint _____________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
<PAGE>
EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- -----------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
Exhibit 4.2
KW
[LOGO]
K2 DESIGN, INC.
A DELAWARE CORPORATION
REDEEMABLE COMMON STOCK PURCHASE WARRANT
VOID AFTER , 2001
CUSIP 482731 11 4
THIS CERTIFIES THAT for value received
or registered assigns (the ``Registered Holder'') is the owner of
Redeemable Warrants (the ``Warrants''). Two Warrants initially entitle the
Registered Holder to purchase, subject to the terms and conditions set
forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $.01 par
value, of K2 Design, Inc., a Delaware corporation (the ``Company''), at any
time between , 1996 (the ``Initial Warrant Exercise Date''), and the
Expiration Date (as hereinafter defined) upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004, as Warrant
Agent, or its successor (the ``Warrant Agent''), accompanied by payment of
$ , subject to adjustment (the ``Purchase Price''), in lawful money of
the United States of America in cash or by check made payable to the
Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the ``Warrant Agreement''),
dated , 1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby
are subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interest will be issued. In the case
of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof
and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor, which the Warrant Agent shall countersign, for
the balance of such Warrants
The term ``Expiration Date'' shall mean 5:00 p.m. (New York time) on
the date which is five years after the Initial Warrant Exercise Date. If
each such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall
mean 5:00 p.m. (New York time) the next following day which in the State of
New York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the ``Act''), with respect to such
securities is effective or an exemption thereunder is available. The
Company has covenanted and agreed that it will file a registration
statement under the Federal securities laws, use its best efforts to cause
the same to become effective, use its best efforts to keep such
registration statement current, if required under the Act, while any of the
Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this
Warrant. This Warrant shall not be exercisable by a Registered Holder in
any state where such exercise would be unlawful.
<PAGE>
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a
new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant
Certificates to represent such number of Warrants as shall be designated by
such Registered Holder at the time of such surrender. Upon due presentment
and payment of any tax or other charge imposed in connection therewith or
incident thereto, for registration of transfer of this Warrant Certificate
at such office, a new Warrant Certificate of Warrant Certificates
representing an equal aggregate number of Warrants will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of
the Company, including, without limitation, the right to vote or receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at a redemption price of $.05 per
Warrant, at any time commencing after the Initial Warrant Exercise Date,
provided that (i) the average closing bid price for the Common Stock as
reported by the
National Association of Securities Dealers Automated Quotation System
(``NASDAQ''), if the Common Stock is then traded in the over-the-counter
market or (ii) the average closing sale price, if the Common Stock is then
traded on NASDAQ/NMS or a national securities exchange, shall have equalled
or exceeded for twenty (20) consecutive trading days ending on the fifth
day prior to the Notice of Redemption, as defined below, $21.50 per share
(subject to adjustment in the event of any stock splits or other similar
events). Notice of redemption (the ``Notice of Redemption'') shall be given
not later than the thirtieth day before the date fixed for redemption, all
as provided in the Warrant Agreement. On or after the date fixed for
redemption, the Registered Holder shall have no rights with respect to the
Warrants except to receive the $.05 per Warrant upon surrender of this
Warrant Certificate.
Under certain circumstances, Donald & Co. Securities Inc. shall be
entitled to receive an aggregate of five percent (5%) of the Purchase Price
of the Warrants represented hereby.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by
anyone other than a duly authorized officer of the Company or the Warrant
Agent) for all purposes and shall not be affected by any notice to the
contrary, except as provided in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted
hereon.
Dated: K2 DESIGN, INC.
[SEAL] By /s/
-----------------
CHAIRMAN
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
(JERSEY CITY, NJ)
By: as Warrant Agent
/s/
Authorized Officer -----------------
SECRETARY
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
(please print or type name and address)
and be delivered to
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by Donald & Co.
Securities Inc. [ ]
2. The exercise of this Warrant was solicited by
_____________________ [ ]
3. The exercise of this Warrant was not solicited.
Dated:
--------------------- X---------------------------------
----------------------------------
----------------------------------
----------------------------------
Address
----------------------------------
Social Security or Taxpayer
Identification Number
----------------------------------
Signature Guaranteed
----------------------------------
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, ________________ , hereby sells, assigns and transfers unto
<PAGE>
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ______________
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _____________________________________________________
_____________________________________________________________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated:
-------------- X---------------------------------------
Signature Guaranteed
----------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A BANK, OTHER THAN A SAVINGS BANK, OR TRUST COMPANY HAVING AN
OFFICE OR CORRESPONDENT IN NEW YORK, NEW YORK, OR BY A FIRM HAVING MEMBERSHIP ON
A REGISTERED NATIONAL SECURITIES EXCHANGE AND AN OFFICE IN NEW YORK, NEW YORK.
Exhibit 4.3
REPRESENTATIVE'S WARRANT AGREEMENT (THE "WARRANT AGREEMENT"),
dated as of _________ 1996, between K2 DESIGN, INC., a Delaware
corporation (the "Company"), and DONALD & CO. SECURITIES INC. (hereinafter
referred to variously as the "Holder" or the "Representative").
------------------------------------------------------------
The Company proposes to issue to the Representative warrants (the
"Warrants") to purchase up to 100,000 shares of the Company's common stock,
par value $.01 per share (the "Common Stock") and 100,000 Redeemable Common
Stock Purchase Warrants (the "Redeemable Warrants"), together on the basis
of one share of Common Stock and one Redeemable Warrant (the "Units");
The Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated _________ 1996 among the
Company, the Representative and the other underwriters named in Schedule I
thereof (collectively with the Representative, the "Underwriters") to act
as the representative of the Underwriters in connection with the Company's
proposed initial public offering (the "Initial Public Offering") of
1,000,000 shares of Common Stock and 1,000,000 Redeemable Warrants,
together on the basis of one share of Common Stock and one Redeemable
Warrant, at initial public offering prices of $_____ per share of Common
Stock and $________ per Redeemable Warrant; and
The Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and
as part of the compensation in connection with, the Representative acting
as representative of the Underwriters pursuant to the Underwriting
Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by
the Representative to the Company of ONE HUNDRED DOLLARS AND NO CENTS
($100.00), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. GRANT. The Holder (as hereinafter defined) is hereby
-----
granted the right to purchase, at any time from _________, 1997 until 5:30
p.m., New York time, on _________, 2001, up to 100,000 Units at an initial
exercise price (subject to adjustment as provided in Article 8 hereof) of
$_____ per Unit, subject to the terms and conditions of this Agreement.
Except as set forth in this Section 1, the Redeemable Warrants issuable
upon exercise of the Warrants are in all respects identical to the
Redeemable Warrants being sold in the Initial Public Offering pursuant to
the terms and provisions of the Warrant Agreement, dated ___, 1996, between
the Company and Continental Stock Transfer & Trust Company.
1
<PAGE>
2. (1) WARRANT CERTIFICATES. The warrant certificates
--------------------
(the "Warrant Certificates") delivered and to be delivered pursuant to this
Agreement shall be in the form set forth in Exhibit A, attached hereto and
made a part hereof, with such appropriate insertions, omissions,
substitutions, and other variations as required or permitted by this
Agreement.
3. EXERCISE OF WARRANT. The Warrants initially are exercisable
-------------------
at the initial exercise price per Unit set forth in Section 6 hereof,
payable by certified or official bank check in New York Clearing House
funds, subject to adjustment as provided in Section 8 hereof. Upon
surrender of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Units purchased at the Company's principal
offices (presently located at _________________________) the registered
holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled
to receive a certificate or certificates for the shares of Common Stock and
a certificate or certificates for the Redeemable Warrants evidencing the
Units. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but
not as to fractional shares of Common Stock and Redeemable Warrants
underlying the Warrants). In the case of the purchase of less than all the
securities purchasable under any Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and shall
execute and deliver a new Warrant Certificate of like tenor for the balance
of the securities purchasable thereunder.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the
------------------------
Warrants, the issuance of certificates representing the shares of Common
Stock and the Redeemable Warrants or other securities, properties or rights
underlying such Warrants, and upon the exercise of the Redeemable Warrants,
the issuance of certificates for shares of Common Stock or other
securities, properties or rights underlying such Redeemable Warrants, shall
be made forthwith (and in any event within three (3) business days
thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections
5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in
a name other than that of the Holder and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants or other securities,
property or rights shall be executed on behalf of the Company by the manual
or facsimile signature of the Chairman of the Board of Directors, or the
President or any Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
Treasurer or Assistant
2
<PAGE>
5.Treasurer or the Secretary or Assistant Secretary of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or
transfer.
6. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a
-----------------------------------
Warrant Certificate, by its acceptance thereof, covenants and agrees that
the Warrants may not be sold, transferred, assigned, hypothecated or
otherwise disposed of, in whole or in part, for a period of one (1) year
from the date hereof, except to officers of the Underwriters or to officers
of the Selected Dealers participating in the Initial Public Offering.
7. EXERCISE PRICE.
--------------
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. The initial
-----------------------------------
exercise price of each Warrant shall be $_____ per share of Unit. The
adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in
accordance with the provisions of Section 8 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall
--------------
mean the initial exercise price or the adjusted exercise price, depending
upon the context.
8. REGISTRATION RIGHTS.
-------------------
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The
---------------------------------------------
Warrants, the Units, including the shares of Common Stock and the
Redeemable Warrants that are included in the Units, and the shares of
Common Stock issuable upon exercise of the Redeemable Warrants have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"). Upon exercise, in part or in whole, of the Warrants, certificates
representing the shares of Common Stock, the Redeemable Warrants and upon
exercise of the Redeemable Warrants, in whole or in part, certificates
representing the shares of Common Stock underlying the Redeemable Warrants
and any other securities issuable upon exercise of the Warrants
(collectively, the "Warrant Securities") shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), (II) TO THE
EXTENT APPLICABLE, RULE 144 UNDER THE SECURITIES ACT
(OR ANY SIMILAR RULE UNDER THE SECURITIES ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY
SATISFACTORY TO COUNSEL TO K2 DESIGN, INC., THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS
AVAILABLE.
7.2 PIGGYBACK REGISTRATION. If, at any time commencing on
----------------------
________, 1997 and expiring six (6) years thereafter, the Company proposes
to register any of its securities under the Securities Act (other than in
connection with a transaction contemplated by Rule 145(a) promulgated under
the Securities Act or pursuant to Form S-4, Form S-8 or any successor form
thereto), it will give written notice by registered mail, at least thirty
(30) days prior to the filing of
3
<PAGE>
each such registration statement, to the Representative and to all other
Holders of the Warrants and/or Warrant Securities of its intention to do
so. If the Representative or other Holders of the Warrants and/or Warrant
Securities notify the Company within twenty (20) days after receipt of any
such notice of its or their desire to include any such securities in such
proposed registration statement, the Company shall afford the
Representative and such Holders of the Warrants and/or Warrant Securities
the opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this Section 7.2, the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 7.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 DEMAND REGISTRATION.
-------------------
(a) At any time commencing on ________, 1997 and expiring
four (4) years thereafter, the Holders of Warrants and/or Warrant
Securities representing more than 50% of such securities at that time
outstanding (assuming the exercise of all of the Warrants), shall have the
right (which right is in addition to the registration rights under Section
7.2 hereof), exercisable by written notice to the Company, to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of
both counsel for the Company and counsel for the Representative and Holders
in order to comply with the provisions of the Securities Act, so as to
permit a public offering and sale of their respective Warrant Securities
for nine (9) consecutive months by such Holders and any other Holders of
the Warrants and/or Warrant Securities who notify the Company within ten
(10) days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice
of any registration request under this Section 7.3 by the majority of the
Holders to all other registered Holders of the Warrants and the Warrant
Securities within ten (10) days from the date of the receipt of any such
registration request.
(c) In addition to the registration rights under Section
7.2 and subsection (a) of this Section 7.3, at any time commencing on
________, 1997 and expiring four (4) years thereafter, the Holders of
Warrants and/or Warrant Securities representing more than 50% of such
securities at the time outstanding (assuming the exercise of all of the
Warrants) shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and
sale for nine (9) consecutive months by any such Holder of its Warrant
Securities; provided, however, that the provisions of Section 7.4(b) hereof
shall not apply to any such registration request and
4
<PAGE>
registration and all costs incident thereto shall be at the expense of the
Holder or Holders making such request.
7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION.
-----------------------------------------------------
In connection with any registration under Section 7.2 or 7.3 hereof, the
Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand
pursuant to Section 7.3, shall use its best efforts to have any
registration statements declared effective at the earliest possible time,
and shall furnish each Holder desiring to sell Warrant Securities such
number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding transfer
taxes, if any, and fees and expenses of Holder(s)' counsel and any
underwriting or selling commissions), fees and expenses in connection with
all registration statements filed pursuant to Sections 7.2 and 7.3(a)
hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. The Holder(s) will
pay all costs, fees and expenses in connection with any registration
statement filed pursuant to Section 7.3(c). If the Company shall fail to
comply with the provisions of Section 7.4(a), the Company shall, in
addition to any other equitable or other damages or relief available to the
Holder(s), be liable for any or all incidental, special and consequential
damages and damages due to loss of profit sustained by the Holder(s)
requesting registration of their Warrant Securities.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue
sky laws of such states as reasonably are requested by the Holder(s),
provided that the Company shall not be obligated to execute or file any
general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the
Warrant Securities to be sold pursuant to any registration statement and
each person, if any, who controls such Holders within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against all loss,
claim, damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Securities
Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the
provisions to which the Company has agreed to indemnify the Underwriters
contained in Section 8 of the Underwriting Agreement.
(e) The Company shall not require the Holder(s) to exercise
their Warrants prior to the initial filing of any registration statement or
the effectiveness thereof.
5
<PAGE>
(f) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in the
registration statement filed pursuant to Section 7.3(a) hereof, without the
prior written consent of the Holders of Warrants and/or Warrant Securities
representing more than 50% of such securities at that time outstanding
(assuming the exercise of all of the Warrants).
(g) The Company shall furnish to the Representative on
behalf of each Holder participating in the offering and to the managing
underwriter, if any, a signed counterpart, addressed to the Representative
on behalf of each such Holder and to the managing underwriter, if any, of
(i) an opinion of counsel to the Company, dated the effective date of such
registration statement if there is no managing underwriter or the date of
the closing under the underwriting agreement if there is a managing
underwriter, and (ii) a "cold comfort" letter, dated the effective date of
such registration statement and the date of the closing under the
underwriting agreement if there is a managing underwriter, signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities.
(h) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15
months thereafter, make "generally available to its security holders"
(within the meaning of Rule 158 under the Securities Act) an earnings
statement (which need not be audited) complying with Section 11(a) of the
Securities Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(i) The Company shall deliver promptly to each Holder who
so requests and the managing underwriter, if any, copies of all
correspondence between the Commission and the Company, its counsel or
auditors and all memoranda relating to discussions with the Commission or
its staff with respect to any registration statement filed pursuant to this
Agreement, and permit each Holder who so requests and the managing
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration
statement as it deems reasonably necessary to comply with applicable
securities laws or rules of the National Association of Securities Dealers,
Inc. ("NASD"). Such investigation shall include access to books, records
and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent
and at such reasonable times and as often as each Holder and the managing
underwriter shall reasonably request.
(j) With respect to a registration statement filed pursuant
to Section 7.3, the Company shall enter into an underwriting agreement with
the managing underwriter selected for such underwriting by Holders holding
a majority of the Warrant Securities requested to be included in such
underwriting. Such agreement shall be satisfactory in form and substance
to the Company,
6
<PAGE>
each Holder and such managing underwriter, and shall contain such
representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Securities and
may, at their option, require that any or all of the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as
they may relate to such Holders and their intended methods of distribution.
7.6 COVENANTS OF THE HOLDER(S) WITH RESPECT TO REGISTRATION.
-------------------------------------------------------
The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act, against all
loss, claim, damage or expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any
claim whatsoever) to which they may become subject under the Securities
Act, the Exchange Act or otherwise, arising from information furnished by
or on behalf of such Holders, or their successors or assigns, for specific
inclusion in such registration statement to the same extent and with the
same effect as the provisions contained in Section 8 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
------------------------------------------------------
8.1 SUBDIVISION AND COMBINATION. In case the Company shall
---------------------------
at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case
of subdivision or increased in the case of combination.
8.2 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each
----------------------------------
adjustment of the Exercise Price pursuant to the provisions of this Section
8, the number of Units issuable upon the exercise of each Warrant shall be
adjusted to the nearest full amount by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number
of Units issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
8.3 DEFINITION OF COMMON STOCK. For the purpose of this
--------------------------
Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the
Company as it may be amended as of the date hereof, or (ii) any other class
of stock resulting from successive changes or reclassifications of such
Common Stock consisting solely of changes in par value, or from par value
to no par value, or from no par value to par value.
7
<PAGE>
8.4 MERGER OR CONSOLIDATION. In case of any consolidation
-----------------------
of the Company with, or merger of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement
providing that the Holder of each Warrant then outstanding or to be
outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of
this Subsection shall similarly apply to successive consolidations or
mergers.
8.5 DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that
---------------------------------
the Company shall at any time prior to the exercise of all Warrants declare
a dividend (consisting of shares of Common Stock) or otherwise distribute
to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether
issued by the Company or by another, or any other thing of value, the
Holders of the unexercised Warrants shall thereafter be entitled, in
addition to the shares of Common Stock, Redeemable Warrants or other
securities and property receivable upon the exercise thereof, to receive,
upon the exercise of such Warrants, the same property, assets, rights,
evidences of indebtedness, securities or any other thing of value that they
would have been entitled to receive at the time of such dividend or
distribution as if the Warrants had been exercised immediately prior to
such dividend or distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the
timely performance of the provisions of this subsection 8.5. Nothing
contained herein shall provide for the receipt or accrual by a Holder of
cash dividends prior to the exercise by such Holder of the Warrants.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each
------------------------------------------------
Warrant Certificate is exchangeable without expense, upon the surrender
thereof by the registered Holder at the principal executive office of the
Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Units in such
denominations as shall be designated by the Holder thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
Warrant Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and reimbursement to
the Company of all reasonable expenses incidental thereto, and upon
surrender and cancellation of the Warrants, if mutilated, the Company will
make and deliver a new Warrant Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not
-----------------------------------
be required to issue certificates representing fractions of shares of
Common Stock or Redeemable Warrants upon
8
<PAGE>
the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the
parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock,
Redeemable Warrants or other securities, properties or rights as the case
may be.
11. RESERVATION AND LISTING. The Company shall at all times
-----------------------
reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the
Warrants and payment of the Exercise Price therefor, all shares of Common
Stock, Redeemable Warrants and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. The Company further
covenants and agrees that upon exercise of the Redeemable Warrants
underlying the Warrants and payment of the Redeemable Warrant exercise
price therefor, all shares of Common Stock and other securities issuable
upon such exercise shall be duly and validly issued, fully paid, non-
assessable and not subject to the preemptive rights of any stockholder. As
long as the Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock and Redeemable Warrants
issuable upon the exercise of the Warrants and shares of Common Stock
issuable upon exercise of the Redeemable Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the
Common Stock and the Redeemable Warrants issued in connection with the
Initial Public Offering may then be listed and/or quoted on The Nasdaq
Stock Market.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this
--------------------------
Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter,
or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to
receive a dividend or distribution payable otherwise than in
cash, or a cash dividend or distribution payable otherwise than
out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to
subscribe therefor; or
9
<PAGE>
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and
business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written
notice of such event at least fifteen (15) days prior to the date fixed as
a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale.
Such notice shall specify such record date or the date of closing the
transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in
connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription
rights, options or warrants, or any proposed dissolution, liquidation,
winding up or sale.
13. NOTICES. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be deemed to have
been duly made when delivered, or mailed by registered or certified mail,
return receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by
notice to the Holders.
14. SUPPLEMENTS AND AMENDMENTS. The Company and the
--------------------------
Representative may from time to time supplement or amend this Agreement
without the approval of any Holders of Warrant Certificates (other than the
Representative) in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with
any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Representative may
deem necessary or desirable and which the Company and the Representative
deem shall not adversely affect the interests of the Holders of Warrant
Certificates.
15. SUCCESSORS. All the covenants and provisions of this
----------
Agreement shall be binding upon and inure to the benefit of the Company,
the Holders and their respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close of
-----------
business on ________, 2003. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination
until the close of business on ________, 2006.
17. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement
-----------------------------------------
and each Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the
10
<PAGE>
State of New York and for all purposes shall be construed in accordance
with the laws of said State without giving effect to the rules of said
State governing the conflicts of laws. The Company, the Representative and
the Holders hereby agree that any action, proceeding or claim against it
arising out of, or relating in any way to, this Agreement shall be brought
and enforced in the courts of the State of New York or of the United States
District Court for the Southern District of New York, and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive. The
Company, the Representative and the Holders hereby irrevocably waive any
objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company, the Representative
and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 13 hereof. Such
mailing shall be deemed personal service and shall be legal and binding
upon the party so served in any action, proceeding or claim. The Company,
the Representative and the Holders agree that the prevailing party(ies) in
any such action or proceeding shall be entitled to recover from the other
part(ies) all of its/their reasonable legal costs and expenses relating to
such action or proceeding and/or incurred in connection with the
preparation therefor.
18. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including
------------------------------
the Underwriting Agreement to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended
except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
19. SEVERABILITY. If any provision of this Agreement shall be
------------
held to be invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision of this Agreement.
20. CAPTIONS. The caption headings of the Sections of this
--------
Agreement are for convenience of reference only and are not intended, nor
should they be construed as, a part of this Agreement and shall be given no
substantive effect.
21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
--------------------------
be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Company and the Representative and any other
Holder(s) of the Warrant Certificates or Warrant Securities.
22. COUNTERPARTS. This Agreement may be executed in any number
------------
of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and such counterparts shall together constitute
but one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
K2 DESIGN, INC.
By:_________________________________
Name: David J. Centner
Title: Chief Executive Officer
Attest:
___________________________
Bradley K. Szollose, Secretary
DONALD & CO. SECURITIES INC.
By:___________________________________
Name: Stephen A. Blum
Title: President
12
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), (II) TO THE EXTENT APPLICABLE,
RULE 144 UNDER THE SECURITIES ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION OF COUNSEL,
IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, ________, 2001
NO. W- _________ WARRANTS
WARRANT CERTIFICATE
This Warrant Certificate certifies that ________, or registered
assigns, is the registered holder of _____________ Warrants to purchase
initially, at any time from ________, 1997 until 5:30 P.M. New York time on
________, 2001 ("Expiration Date"), up to _________ fully paid and non-
assessable shares of common stock, $.01 par value ("Common Stock") and
___________ Redeemable Common Stock Purchase Warrants (the "Redeemable
Warrants"), together on the basis of one share of Common Stock and one
Redeemable Warrant (the "Units"), of K2 DESIGN, INC., a Delaware
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $_____ per Unit,
upon surrender of this Warrant Certificate and payment of the Exercise
Price at an office or agency of the Company, but subject to the conditions
set forth herein and in the Representative's Warrant Agreement dated as of
________, 1996 between the Company and Donald & Co. Securities Inc. (the
"Representative's Warrant Agreement").
<PAGE>
Payment of the Exercise Price shall be made by certified or official bank
check in New York Clearing House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants issued pursuant to the Representative's
Warrant Agreement, which Representative's Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the
occurrence of certain events the Exercise Price and the type and/or number
of the Company's securities issuable thereupon may, subject to certain
conditions, be adjusted. In such event, the Company will, at the request of
the holder, issue a new Warrant Certificate evidencing the adjustment in
the Exercise Price and the number and/or type of securities issuable upon
the exercise of the Warrants; provided, however, that the failure of the
Company to issue such new Warrant Certificates shall not in any way change,
alter, or otherwise impair, the rights of the holder as set forth in the
Representative's Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Representative's Warrant Agreement, without any charge
except for any tax or other governmental charge imposed in connection with
such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected
by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in
the Representative's Warrant Agreement shall have the meanings assigned to
them in the Representative's Warrant Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ____________, 1996
K2 DESIGN, INC.
By:__________________________________
Name: David J. Centner
Title: Chief Executive Officer
Attest:
____________________________
Bradley K. Szallose, Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________ Units and
herewith tenders in payment for such securities a certified or official
bank check payable in New York Clearing House Funds to the order of K2
DESIGN, INC. in the amount of $___________, all in accordance with the
terms hereof. The undersigned requests that a certificate for such
securities be registered in the name of ______________________________
whose address is __________________________ and that such Certificate be
delivered to ___________________ whose address is
____________________________.
Dated:
Signature:___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
(Insert Social Security or Other Identifying
Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_______________________ Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, and full power of
substitution.
Dated: Signature:__________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
(Insert Social Security or Other Identifying
Number of Assignee)
EXHIBIT 4.4
-----------
[FORM OF WARRANT AGREEMENT]
- ----------------------------------------------------------------------------
K2 DESIGN, INC.
AND
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
____________________
WARRANT AGREEMENT
DATED AS OF ________________, 1996
- ----------------------------------------------------------------------------
<PAGE>
AGREEMENT, dated this ____ day of _______, 1996, between K2 DESIGN,
INC., a Delaware Corporation (the "Company"), and CONTINENTAL STOCK
TRANSFER AND TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public of up to
1,000,000 shares of the Company's common stock, $.01 par value per share
(the "Common Stock"); (ii) 1,000,000 redeemable warrants (the "Warrants"),
two Warrants entitling the holder thereof to purchase one additional share
of Common Stock, (iii) the over-allotment option to purchase up to an
additional 150,000 shares of Common Stock and 150,000 Warrants, (the "Over-
allotment Option"), and (iv) the sale to Donald & Co. Securities Inc., its
successors and assigns (collectively, the "Representative") of warrants
(the "Representative's Warrants") to purchase up to 100,000 shares of
Common Stock and 100,000 Warrants, the Company will issue up to 1,250,000
Warrants (subject to increase as provided in the Representative's Warrant
Agreement); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer and exchange of certificates representing
the Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms
and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the
Company, the Representative, the holders of certificates representing the
Warrants and the Warrant Agent, the parties hereto agree as follows:
-1-
<PAGE>
SECTION 1. Definitions. As used herein, the following terms shall
-----------
have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in
the voting and in the distribution of earnings and assets of the Company
without limit as to amount or percentage.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal
business in New York, New York, shall be administered, which office is
located on the date hereof at 2 Broadway, New York, New York 10004.
(c) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such
Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (ii) payment
in cash or by check made payable to the Warrant Agent for the account of
the Company, of the amount in lawful money of the United States of America
equal to the applicable Purchase Price in good funds.
(d) "Initial Warrant Exercise Date" shall mean ____________,
1996 [the effective date of the Registration Statement].
(e) "Initial Warrant Redemption Date" shall mean ____________,
1996 [the effective date of the Registration Statement].
(f) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8, $___ [125% of the initial public
offering price of the Common Stock].
(g) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
-2-
<PAGE>
(h) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to
elect a majority of the Board of Directors of such corporation (regardless
of whether at the time stock of any other class or classes of such
corporation shall have or may have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
(i) "Transfer Agent" shall mean Continental Stock Transfer and
Trust Company, or its authorized successor.
(j) "Underwriting Agreement" shall mean the underwriting
agreement dated ____________, 1996 [the date of the Prospectus] between the
Company and the Representative relating to the purchase for resale to the
public of the 1,000,000 shares of Common Stock and 1,000,000 Warrants.
(k) "Representative's Warrant Agreement" shall mean the
agreement dated as of ____________, 1996 [the date of the Prospectus]
between the Company and the Representative relating to and governing the
terms and provisions of the Representative's Warrants.
(l) "Warrant Certificate" shall mean a certificate representing
each of the Warrants substantially in the form annexed hereto as Exhibit A.
(m) "Warrant Expiration Date" shall mean, unless the Warrants
are redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m.
(New York time), on the date which is five years after the Initial Warrant
Exercise Date, or, if such date shall in the State of New York be a holiday
or a day on which banks are authorized to close, then 5:00 p.m. (New York
time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close, subject to the
Company's right, prior to the Warrant Expiration Date, in its sole
-3-
<PAGE>
discretion, to extend such Warrant Expiration Date on five business days'
prior written notice to the Registered Holders.
(n) "Warrant Agent" shall mean Continental Stock Transfer and
Trust Company, or its authorized successor.
SECTION 2. Warrants and Issuance of Warrant Certificates.
---------------------------------------------
(a) Two Warrants shall initially entitle the Registered Holder
of the Warrant Certificate representing such Warrants to purchase at the
Purchase Price therefor from the Initial Warrant Exercise Date until the
Warrant Expiration Date one share of Common Stock upon the exercise
thereof, subject to modification and adjustment as provided in Section 8.
(b) Upon execution of this Agreement, Warrant Certificates
representing 1,000,000 Warrants to purchase up to an aggregate 500,000
shares of Common Stock (subject to modification and adjustment as provided
in Section 8) shall be executed by the Company and delivered to the Warrant
Agent.
(c) Upon exercise of the Over-allotment Option, in whole or in
part, Warrant Certificates representing up to 150,000 Warrants to purchase
up to an aggregate of 75,000 shares of Common Stock (subject to
modification and adjustment as provided in Section 8) shall be executed by
the Company and delivered to the Warrant Agent.
(d) Upon exercise of the Underwriter's Warrants as provided
therein, Warrant Certificates representing all or a portion of 100,000
Warrants to purchase up to an aggregate of 50,000 shares of Common Stock
(subject to modification and adjustment as provided in Section 8 hereof and
in the Representative's Warrant Agreement), shall be countersigned, issued
and delivered by the Warrant Agent upon written order of the Company signed
by its Chairman of the Board, Vice Chairman or an Executive Vice President
and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary.
-4-
<PAGE>
(e) From time to time, up to the Warrant Expiration Date, as the
case may be, the Warrant Agent shall countersign and deliver Warrant
Certificates in required denominations of one or whole number multiples
thereof to the person entitled thereto in connection with any transfer or
exchange permitted under this Agreement. Except as provided in Section 7
hereof, no Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued
upon any transfer or exchange of Warrant, (iii) Warrant Certificates issued
in replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7, (iv) Warrant Certificates issued pursuant to the
Representative's Warrant Agreement (including Warrants in excess of the
Representative's Warrants to purchase 100,000 shares of Common Stock and
100,000 Warrants issued as a result of the anti-dilution provisions
contained in the Representative's Warrant Agreement), and (v) at the option
of the Company, Warrant Certificates in such form as may be approved by its
Board of Directors, to reflect any adjustment or change in the Purchase
Price, the number of shares of Common Stock purchasable upon exercise of
the Warrants or the Redemption Price therefor made pursuant to Section 8
hereof.
SECTION 3. Form and Execution of Warrant Certificates.
------------------------------------------
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Warrants may be listed, or to conform to usage.
The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates).
-5-
<PAGE>
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, Vice Chairman or any Executive Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary
or an Assistant Secretary, by mutual signatures or by facsimile signatures
printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be mutually countersigned by
the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed
any of the Warrant Certificates shall cease to be such officer of the
Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the
person who signed such Warrant Certificates had not ceased to be such
officer of the Company.
SECTION 4. Exercise.
--------
(a) Warrants in denominations of two or whole number multiples
thereof may be exercised commencing at any time on or after the Initial
Warrant Exercise Date, but not after the Warrant Expiration Date, upon the
terms and subject to the conditions set forth herein (including the
provisions set forth in Sections 5 and 9 hereof) and in the applicable
Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date, provided
that the Warrant Certificate representing such Warrant, with the exercise
form thereon duly executed by the Registered Holder thereof or his attorney
duly authorized in writing, together with payment in cash or by check made
payable to the Warrant Agent for the account of the Company, of an amount
in lawful money of the United States of America equal to the applicable
Purchase Price has been received in good funds by the Warrant Agent. The
person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of such securities
as of the close of business on the Exercise Date. If Warrants in
denominations other than
-6-
<PAGE>
two or whole number multiples thereof shall be exercised at one time by the
same Registered Holder, the number of full shares of Common Stock which
shall be issuable upon exercise thereof shall be computed on the basis of
the aggregate number of full shares of Common Stock issuable upon such
exercise. As soon as practicable on or after the Exercise Date and in any
event within five business days after such date, if two or more Warrants
have been exercised, the Warrant Agent on behalf of the Company shall cause
to be issued to the person or persons entitled to receive the same a Common
Stock certificate or certificates for the shares of Common Stock
deliverable upon such exercise, and the Warrant Agent shall deliver the
same to the person or persons entitled thereto. Upon the exercise of any
two or more Warrants, the Warrant Agent shall promptly notify the Company
in writing of such fact and of the number of securities delivered upon such
exercise and, subject to subsection (b) below, shall cause all payments of
an amount in cash or by check made payable to the order of the Company,
equal to the Purchase Price, to be deposited promptly in the Company's bank
account.
(b) At any time upon the exercise of any Warrants after one year
and one day from the date hereof, the Warrant Agent shall, on a daily
basis, within two business days after such exercise, notify the
Representative, its successors or assigns of the exercise of any such
Warrants and shall, on a weakly basis (subject to collection of funds
constituting the tendered Purchase Price, but in no event later than five
business days after the last day of the calendar week in which such funds
were tendered), remit to the Representative an amount equal to five percent
(5%) of the Purchase Price of such Warrants being then exercised unless the
Representative shall have notified the Warrant Agent that the payment of
such amount with respect to such Warrant is violative of the General Rules
and Regulations promulgated under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act"), or the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") or applicable state
securities or "blue sky" laws, or the Warrants are those underlying the
Representative's Warrants in which event, the Warrant Agent shall have to
pay such amount to the
-7-
<PAGE>
Company; provided, that, the Warrant Agent shall not be obligated to pay
any amounts pursuant to this Section 4(b) during any week that such amounts
payable are less than $1,000 and the Warrant Agent's obligation to make
such payments shall be suspended until the amount payable aggregates
$1,000, and provided further, that, in any event, any such payment
(regardless of amount) shall be made not less frequently than monthly.
(c) The Company shall not be required to issue fractional shares
on the exercise of Warrants. Warrants may only be exercised in such
multiples as are required to permit the issuance by the Company of one or
more whole shares. If one or more Warrants shall be presented for exercise
in full at the same time by the same Registered Holder, the number of whole
shares which shall be issuable upon such exercise thereof shall be computed
on the basis of the aggregate number of shares purchasable on exercise of
the Warrants so presented. If any fraction of a share would, except for
the provisions provided herein, be issuable on the exercise of any Warrant
(or specified portion thereof), the Company shall pay an amount in cash
equal to such fraction multiplied by the current market value of a share of
Common Stock, determined as follows:
(1) If the Common Stock is listed, or admitted to unlisted
trading privileges on the NYSE or the AMEX, or is traded on the NASDAQ
(NMS), the current market value of a share of Common Stock shall be the
closing sale price of the Common Stock at the end of the regular trading
session on the last business day prior to the date of exercise of the
Warrants on whichever of such exchanges or NASDAQ (NMS) had the highest
average daily trading volume for the Common Stock on such day; or
(2) If the Common Stock is not listed or admitted to
unlisted trading privileges, on either the NYSE or the AMEX and is not
traded on NASDAQ (NMS), but is quoted or reported on NASDAQ, the
current market value of a share of Common Stock shall be the average of the
representative closing bid and asked prices (or the last sale price, if
then reported by NASDAQ)
-8-
<PAGE>
of the Common Stock at the end of the regular trading session on the last
business day prior to the date of exercise of the Warrants as quoted or
reported on NASDAQ, as the case may be; or
(3) If the Common Stock is not listed, or admitted to unlisted
trading privileges, on either of the NYSE or the AMEX, and is traded on
NASDAQ (NMS) or quoted or reported on NASDAQ, but is listed or admitted to
unlisted trading privileges on the BSE or other national securities
exchange (other than the NYSE or the AMEX), the current market value of a
share of Common Stock shall be the closing sale price of the Common Stock
at the end of the regular trading session on the last business day prior to
the date of exercise of the Warrants on whichever of such exchanges has the
highest average daily trading volume for the Common Stock on such day; or
(4) If the Common Stock is not listed or admitted to unlisted
trading privileges on any national securities exchange, or listed for
trading on NASDAQ (NMS) or quoted or reported on NASDAQ, but is traded in
the over-the-counter market, the current market value of a share of Common
Stock shall be the average of the last reported bid and asked prices of the
Common Stock reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of exercise of the Warrants; or
(5) If the Common Stock is not listed, admitted to unlisted
trading privileges on any national securities exchange, or listed for
trading on NASDAQ (NMS) or quoted or reported on NASDAQ, and bid and asked
prices of the Common Stock are not reported by the National Quotation
Bureau, Inc., the current market value of a share of Common Stock shall be
an amount, not less than the book value thereof as of the end of the most
recently completed fiscal quarter of the Company ending prior to the date
of exercise, determined in accordance with generally acceptable
accounting principals, consistently applied.
-9-
<PAGE>
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
------------------------------------------------------
(a) The Company covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose
of issue upon exercise of Warrants, such number of shares of Common Stock
as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be
issuable upon exercise of the Warrants shall, at the time of delivery
thereof, be duly and validly issued and fully paid and nonassessable and
free from all preemptive or similar rights, taxes, liens and charges with
respect to the issue thereof, and that upon issuance such shares shall be
listed on each securities exchange, if any, on which the other shares of
outstanding Common Stock of the Company are then listed.
(b) The Company covenants that if any securities to be reserved
for the purposes of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or delivered
upon such exercise, then the Company will file a registration statement
under the federal securities laws or a post effective amendment, use its
best efforts to cause the same to become effective and use its best efforts
to keep such registration statement current while any of the Warrants are
outstanding and deliver a prospectus which complies with Section 10(a)(3)
of the Securities Act of 1933, as amended, (the "Act"), to the Registered
Holder exercising the Warrant (except, if in the opinion of counsel to the
Company, such registration is not required under the federal securities law
or if the Company receives a letter from the staff of the Securities and
Exchange Commission (the "Commission") stating that it would not take any
enforcement action if such registration is not effected). The
Company will use best efforts to obtain appropriate approvals or
registrations under the state "blue sky" securities laws. With respect to
any such securities, however, Warrants may not
-10-
<PAGE>
be exercised by, or shares of Common Stock issued to, any Registered Holder
in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares of
Common Stock upon exercise of the Warrants; provided, however, that if
shares of Common Stock are to be delivered in a name other than the name of
the Registered Holder of the Warrant Certificate representing any Warrant
being exercised, then no such delivery shall be made unless the persons
requesting the same has paid to the Warrant Agent the amount of transfer
taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing
shares of Common Stock or other securities required upon exercise of the
Warrants, and the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
-------------------------------------
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged
shall be surrendered to the Warrant Agent at its Corporate Office, and the
Company shall execute and the Warrant Agent shall countersign, issue and
deliver in exchange therefor the Warrant Certificate or Certificates which
the Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in
which, subject to such reasonable regulations as it may prescribe, shall
register Warrant Certificates and the transfer thereof. Upon the
presentment for registration of transfer of any Warrant Certificate at such
office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
-11-
<PAGE>
(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
exercise form, as the case may be, on the reverse thereof shall be duly
endorsed or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and the
Warrant Agent, duly executed by the Registered Holder thereof or his
attorney duly authorized in writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly canceled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer
thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the absolute owner thereof
and of each Warrant represented thereby (notwithstanding any notations of
ownership or writing thereon made by anyone other than the Company or the
Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
------------------
Warrant Agent of evidence satisfactory to them of the ownership of and the
loss, theft, destruction or mutilation of any Warrant Certificate and (in
the case of loss, theft or destruction) of indemnity satisfactory to them,
and (in case of mutilation) upon surrender and cancellation thereof, the
Company shall exercise and the Warrant Agent shall countersign and deliver
in lien thereof a new Warrant Certificate representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall
also comply with such other reasonable regulations and pay such other
reasonable charges as the Warrant Agent may prescribe.
-12-
<PAGE>
SECTION 8. Adjustment of Purchase Price and Number of Shares of
----------------------------------------------------
Common Stock Deliverable.
- ------------------------
(a) If and to the extent that the number of issued shares of
Common Stock of the Company shall be increased or reduced by change in par
value, split up, stock split, reclassification, distribution of a dividend
payable in stock, or the like, the number of shares subject to the Warrants
and the Purchase Price per share, shall be proportionately adjusted so that
the holders of the Warrants, upon exercise thereof shall be entitled to
receive that number of shares of Common Stock, for the same aggregate
purchase price which would have resulted immediately following such action
had the Warrants been exercised immediately prior thereto.
(b) If after the date hereof any capital reorganization or
reclassification of the Common Stock of the Company, or consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation or other similar
event shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, or sale, lawful and fair provision
shall be made whereby the Warrant holders shall thereafter have the right
to purchase and receive upon the basis and upon the terms and conditions
specified in the Warrants and in lieu of the securities of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented thereby, such shares of stock, securities, or assets as
may be issued or payable with respect to or in exchange for the securities
immediately theretofore purchasable and receivable upon the exercise of the
rights represented by the Warrants had such reorganization,
reclassification, consolidation, merger, or sale not taken place, and in
such event appropriate provision shall be made with respect to the rights
and interests of the Warrants holders to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the
Purchase Price of the Warrants and of the number of securities
purchasable upon the exercise of the Warrants) shall thereafter be
applicable, as nearly as may be in relation to any share of stock,
-13-
<PAGE>
securities, or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger, or sale unless
prior to the consummation thereof the successor entity (if other than the
Company) resulting from such consolidation or merger, or the entity
purchasing such assets, shall assume by written instrument executed and
delivered to the Warrant Agent the obligation to deliver to the Warrant
holders such shares of stock, securities, or assets as, in accordance with
the foregoing provisions, such holders may be entitled to purchase.
(c) Upon every adjustment of the Purchase Price or the number of
securities issuable on exercise of a Warrant, the Company shall give
written notice thereof to the Warrant Agent, which notice shall state the
Purchase Price resulting from such adjustment and the increase or decrease,
if any, in the number of shares purchasable at such price upon the exercise
of a Warrant, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based. Upon the occurrence of
any event specified in clauses (a) or (b) of this Section 8, then, in any
such event, the Company shall give written notice in the manner set forth
in this Agreement of the record date for such dividend, distribution, or
subscription rights, or the effective date of such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding up or issuance. Such notice shall also specify the date as of
which the holders of Common Stock of record shall participate in such
dividend, distributions, or subscription rights, or shall be entitled to
exchange their Common Stock for stock, securities, or other assets
deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding up or issuance. Failure to
give such notice, or any defect therein shall not affect the legality or
validity of such event.
(d) Notwithstanding any provision contained in this Agreement to
the contrary, the Company shall not issue fractional securities upon
exercise of Warrants. If, by reason of any adjustment made purchase to
this Section 8, the holder of any Warrant would be entitled, upon the
-14-
<PAGE>
exercise of such Warrant, to receive a fractional interest in a security,
the Company shall, upon such exercise, purchase such fractional interest as
set forth in clause (c) of Section 4.
(e) The form of Warrant need not be changed because of any
adjustment pursuant to this Section 8, and Warrants issued after such
adjustment may state the same Purchase Price and the same number of
securities as is stated in the Warrants initially issued pursuant to this
Warrant Agreement. However, the Company may at any time in its sole
discretion make any change in the form of Warrant that the Company may deem
appropriate and that does not affect the substance thereof, and any Warrant
thereafter issued or countersigned, whether in exchange or substitution for
an outstanding Warrant or otherwise, may be in the form as so changed.
SECTION 9. Redemption.
----------
(a) Commencing on the Initial Warrant Redemption Date, the
Company may, on 30 days' prior written notice redeem all the Warrants at
five cents ($.05) per Warrant, provided, however, that before any such call
for redemption of Warrants can take place, the (A) average closing bid
price for the Common Stock as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), if the Common
Stock is then traded in the over-the-counter market or (B) if not traded in
the over-the-counter market, the average closing sale price, if the Common
Stock is then traded on NASDAQ/National Market System or on a national
securities exchange, shall have, for twenty (20) consecutive trading days
ending on the fifth day prior to the date on which the notice contemplated
by (b) and (c) below is given, equalled or exceeded, $______ [140% of the
exercise price of the Warrant] (subject to adjustment in the event of any
stock splits or other similar events as provided in Section 8 hereof).
Notwithstanding the foregoing, the Warrants underlying the Representative's
Warrants are subject to redemption, if the Warrants are resold pursuant
to Rule 144 or an effective registration statement.
-15-
<PAGE>
(b) In case the Company shall exercise its right to redeem all
of the Warrants, it shall give or cause to be given notice to the
Registered Holders of the Warrants, by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, at their last address
as shall appear on the records of the Warrant Agent. Any notice mailed in
the manner provided herein shall be conclusively presumed to have been duly
given whether or not the Registered Holder receives such notice. Not less
than five business days prior to the mailing to the Registered Holders of
the Warrants of the notice of redemption, the Company shall deliver or
cause to be delivered to the Representative a similar notice telephonically
and confirmed in writing together with a list of the Registered Holders
(including their respective addresses and number of Warrants beneficially
owned) to whom such notice of redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, which shall in no event be less
than thirty (30) days after the date of mailing of such notice, (iii) the
place where the Warrant Certificate shall be delivered and the redemption
price shall be paid, (iv) that the Representative is the Company's
exclusive warrant solicitation agent and shall receive the commission
contemplated by Section 4(b) hereof, and (v) that the right to exercise the
Warrant shall terminate at 5:00 p.m. (New York time) on the business day
immediately preceding the date fixed for redemption. The date fixed for
the redemption of the Warrants shall be the Redemption Date. No failure to
mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such redemption except as to a
holder (a) to whom notice was not mailed or (b) whose notice was defective.
An affidavit of the Warrant Agent or the Secretary or Assistant Secretary
of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
-16-
<PAGE>
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m.
(New York time) on the business day immediately preceding the Redemption
Date. The redemption price payable to the Registered Holders shall be
mailed to such persons at their addresses of record.
SECTION 10. Concerning the Warrant Agent.
----------------------------
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and the Representative, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates or by any other
act hereunder, be deemed to make any representations as to the validity or
value or authorization of the Warrant Certificates or the Warrants
represented thereby or of any securities or other property delivered upon
exercise of any Warrant or whether any stock issued upon exercise of any
Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustment, or
with respect to the nature or extent of any such adjustment, when made, or
with respect to the method employed in making the same. It shall not
(i) be liable for any recital or statement of fact contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to
be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own gross
negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action
-17-
<PAGE>
taken, suffered or omitted by it in good faith in accordance with the
opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board of Directors, Vice Chairman
or any Executive Vice President (unless other evidence in respect thereof
is herein specifically prescribed). The Warrant Agent shall not be liable
for any action taken, suffered or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to indemnify the
Warrant Agent and save it harmless against any and all losses, expenses and
liabilities, including judgments, costs and counsel fees, for anything done
or omitted by the Warrant Agent in the execution of its duties and powers
hereunder except losses, expenses and liabilities arising as a result of
the Warrant Agent's gross negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities
arising as a result of the Warrant Agent's own gross negligence or willful
misconduct), after giving 30 days' prior written notice to the Company. At
least 15 days prior to the date such resignation is to become effective,
the Warrant Agent shall cause a copy of each notice of resignation to be
mailed to the Registered Holder of each Warrant Certificate at the
Company's expense. Upon such resignation the Company shall appoint in
writing a new warrant agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified in
writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court
of competent jurisdiction for the appointment of a new warrant agent. Any
new warrant agent, whether appointed by the Company or
-18-
<PAGE>
by such a court, shall be a bank or trust company having a capital and
surplus, as shown by its last published report to its stockholders, of not
less than $10,000,000. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant agent
shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named herein as the warrant agent, without any
further assurance, conveyance, act or deed; but if for any reason it shall
be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the
Company and shall be legally and validly executed and delivered by the
resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed
to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, any corporation resulting from
any consolidation to which the Warrant Agent or any new warrant agent shall
be a party, or any corporation succeeding to the corporate trust business
of the Warrant Gent or any new warrant agent shall be a successor warrant
agent under this Agreement without any further act, provided that such
corporation is eligible for appointment as successor to the Warrant Agent
under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holders of each
Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any
of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the
same manner and to the same extent and with like effect as though it were
not Warrant Agent. Nothing herein shall preclude the Warrant Agent from
acting in any other capacity for the Company or for any other legal
entity.
-19-
<PAGE>
(i) The Warrant Agent shall retain for a period of two years
from the date of exercise any Warrant Certificate received by it upon such
exercise.
SECTION 11. Modification of Agreement.
-------------------------
The Warrant Agent and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; or
(ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing
of the Registered Holders representing not less than a majority of the
Warrants then outstanding. In addition, this Agreement may not be
modified, amended or supplemented without the prior written consent of the
Representative, other than to cure any ambiguity or to correct any
provision which is inconsistent with any other provision of this Agreement
or to make any such change that is necessary or desirable and which shall
not adversely affect the interests of Representative and except as may be
required by law.
SECTION 12. Notices.
-------
All notices, requests, comments and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid, or delivered to a telegraph office for
transmission if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company at New York Information Technology Center,
55 Broad Street, 7th Floor, New York, New York 10004, David J. Centner,
Chairman, or at such other address as may have been furnished to the
Warrant Agent in writing by the Company; and if to the Warrant Agent, at
its Corporate Office. Copies of any notice delivered pursuant to this
Agreement shall be delivered to Donald & Co.
-20-
<PAGE>
Securities Inc., Park Avenue Tower, 65 East 55th Street, New York, New York
10022, or at such other address as may have been furnished to the Company
and the Warrant Agent in writing.
SECTION 13. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of
laws.
SECTION 14. Binding Effect.
--------------
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and
the holders from time to time of Warrant Certificates or any of them.
Except as hereinafter stated, nothing in this Agreement is intended or
shall be construed to confer upon any other person any right, remedy or
claim or to impose upon any other person any duty, liability or obligation.
The Representative is, and shall at all times irrevocably be deemed to be,
a third-party beneficiary of this Agreement, with full power, authority and
standing to enforce the rights granted to it hereunder.
-21-
<PAGE>
SECTION 15. Counterparts.
------------
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the first date first above written.
[SEAL]
K2 DESIGN, INC. CONTINENTAL STOCK TRANSFER
AND TRUST COMPANY
As Warrant Agent
By: By:
-------------------------------- --------------------------------
David J. Centner Steven G. Nelson
Chairman of the Bord, Chairman
President and Chief
Executive Officer
By:
--------------------------------
Bradley K. Szollose
Secretary
-22-
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
-23-
FORM OF VOTING AGREEMENT EXHIBIT 4.5
-----------
This Voting Agreement ("AGREEMENT") dated as of ____________, is
entered into by and among each of David J. Centner, Matthew G. de Ganon,
Douglas E. Cleek and Bradley K. Szollose (sometimes hereinafter referred to
collectively as the "MEMBERS" or each individually as a "MEMBER").
ARTICLE I
EFFECTIVE DATE OF AGREEMENT; DEFINITIONS
Section 1.1Effective Date of Agreement. This Agreement shall become
---------------------------
effective upon the consummation of the initial public offering (the
"OFFERING") of K2 Design, Inc., a Delaware Corporation (the "EFFECTIVE
DATE").
Section 1.2Definitions. For purposes of this Agreement, the following
-----------
terms shall have the meanings set forth below:
(a) "ADDITIONAL TEN-YEAR TERM" shall have the meaning set forth
in Section 2.2 hereof.
(b) "COMPANY" shall mean K2 Design, Inc., a Delaware
corporation.
(c) "EFFECTIVE DATE" shall have the meaning set forth in Section
1.1 hereof.
(d) "INITIAL TEN-YEAR TERM" shall have the meaning set forth in
Section 2.1 hereof.
(e) "PERSONS ELIGIBLE TO BE VOTERS" shall mean any Member or
party designated pursuant to Article VI.
(f) "PURCHASE PRICE" shall mean the average closing ask price of
the Shares as quoted on the principal market on which such Shares are
traded, during the five (5) most recently completed trading days
immediately preceding the Offering Member's delivery of written notice of
offer to the Company and each of the other Members.
(g) "SHARES" shall mean shares of the Company's common stock,
par value $.01 per share, as now owned or hereafter acquired, plus all
voting securities hereinafter acquired.
(h) "SUBJECT SHARES" shall mean, with respect to any Member at
any date, all Shares then owned by such Member, provided that this
Agreement shall be in effect with
<PAGE>
respect to any Member at such date.
(i) "MAJORITY" shall mean no less than a majority of the then
existing Members who are signatories to this Agreement.
(j) "VOTER" shall mean Matthew G. de Ganon, or, in the event of
his death or resignation, an individual selected by a majority of the
remaining Members, and any person who becomes a successor Voter pursuant to
Article VI.
ARTICLE II
TERM OF AGREEMENT
Section 2.1 Initial Term. The term of this Agreement shall begin
------------
on the Effective Date and terminate on the date ten years after the
Effective Date (the "INITIAL TEN-YEAR TERM") unless extended for an
Additional Ten-Year Term thereafter pursuant to Section 2.2 hereof.
Section 2.2 Optional Ten-Year Extension. At the written election
---------------------------
of a Majority made during the term of this Agreement may be extended for an
additional ten-year period beginning on the date of expiration of the
Initial Ten-Year Term and ending on the date ten years thereafter (the
"ADDITIONAL TEN-YEAR TERM").
Section 2.3 Expiration of Agreement. Notwithstanding the foregoing
-----------------------
provisions of this Article II, this Agreement shall terminate upon any of
the following events:
(a) The written consent of all of the Members; or
(b) The dissolution or liquidation of the Company, or any
reorganization, merger, or sale of all or substantially all of the
Company's assets.
(c) If within ten (10) days after the resignation, death or
disability of the Voter, no successor Voter has been chosen by a
Majority in accordance with the terms of this Agreement.
ARTICLE III
VOTING PROVISIONS
Section 3.1 Grant of Proxy. Each Member hereby grants to the Voter
--------------
an irrevocable proxy, pursuant to the provisions of Section 212 of the
Delaware General Corporation Law, coupled with an interest, to vote such
person's Subject Shares as the Voter shall determine in his sole discretion
(subject only to the limitations set forth in Section 3.2 hereof) on all
matters which may be presented at any meeting or require the consent of
stockholders of the Company.
<PAGE>
Section 3.2 Vote as to Certain Directors. For as long as this
----------------------------
Agreement shall remain in effect:
(a) the Voter shall vote all the Subject Shares for the election
of each of David J. Centner, Matthew G. de Ganon, Douglas E. Cleek and
Bradley K. Szollose as directors of the Company.
(b) for purposes of clause (a) of this Section 3.2, any Shares
held by a corporation, partnership, trust or other entity shall be treated
as owned by the shareholders, partners or beneficiaries thereof on the
basis of their percentage interest in the entity.
(c) the Voter shall vote all the Subject Shares to limit the
Board of Directors of the Company to a maximum of seven (7) directors.
ARTICLE IV
TRANSFERS OF SUBJECT SHARES
Section 4.1 Transfers of Subject Shares Generally. During the term
-------------------------------------
of this Agreement, no Member hereto shall make any transfer of any Subject
Shares, except in accordance with this Article IV.
Section 4.2 Offer to the Remaining Shareholders. If a Member desires
-----------------------------------
to transfer all or any part of his Subject Shares ("OFFERING MEMBER") he
shall serve written notice upon each of the other Members (the "FIRST
NOTICE") of his intention to do so. The First Notice shall constitute an
offer to sell to each of the other Members all of the Subject Shares owned
by the Offering Members on the terms herein described for the Purchase
Price. Such offer shall be accepted in whole or rejected by the Company
and/or the other Members by notice to the offering Member (the "SECOND
NOTICE") within sixty (60) days of receipt of the First Notice.
Section 4.3 Requirement of Purchase of All Shares Offered. If such
---------------------------------------------
offer of all of the Subject Shares is accepted by any of the Members, then
the closing of the purchase and sale shall be effected as provided for in
Section 4.5. If more than one Member shall accept an offer under this
Section or otherwise under this Agreement, then each of the accepting
Member shall be obligated to purchase that number of the Subject Shares
equal to the total offered divided by the number of accepting Members.
Otherwise, no Member shall be permitted to purchase less than all of the
Offering Member's Subject Shares.
Section 4.4 Right to Offer Subject Shares to Non-Members. If such
--------------------------------------------
offer to sell all of the Offering Member's Shares shall not have been
accepted, then:
(a) The offer shall be deemed to have been rejected
and withdrawn.
(b) All restrictions imposed by this Agreement upon
the sale
<PAGE>
of Subject Shares shall be suspended for a period of three (3) months,
commencing with the date of the mailing of the Second Notice, during
which period the Offering Member may sell all or any part of his
Subject Shares free and clear from all restrictions imposed by this
Agreement on terms no more favorable to the Offering Member than if
any of the other Members had purchased the Subject Shares pursuant to
Sections 4.2 and 4.3, provided however, that the other Members shall
have the first option, exercisable in the manner, including the time
period(s), provided in Sections 4.2 and 4.3 for offers of Subject
Shares, to purchase all Subject Shares for which a contract for sale,
predicated upon bona fide arms-length negotiations, has been entered
into between the Offering Member and a third party purchaser (the
"CONTRACT"), upon the same price and terms of payment and conditions
contained in the Contract. The entrance into the Contract shall be
deemed another offer by the Offering Member to each of the other
Members. All consideration to be given by such third party purchaser
in exchange for the Subject Shares must be cash and/or the execution
and delivery of one or more promissory notes providing only for the
payment of cash.
(c) All sales pursuant to a Contract shall be made in
accordance with applicable federal and state securities laws and
the other Members can require the Offering Member to furnish to
the other Members at the Offering Member's expense, an opinion of
counsel, reasonably acceptable as to the form, substance and
issuer thereof, that such sale is exempt from applicable federal
and state securities registration requirements. All Shares sold
pursuant to this Section 4.4 to a "bona fide third party" shall
continue to be subject to the terms of this Agreement.
(d) If, at the conclusion of such three (3) months of
suspension, the Offering Member still owns any Subject Shares,
all restrictions imposed by this Agreement on the sale of Subject
Shares shall automatically once again become fully effective and
applicable.
In addition, in the event any Member agrees to sell any Subject Shares
to a third party, any other Member shall have the option to include in such
sale that number of Subject Shares equal to the product of (i) the total
number of Subject Shares the Offering Member agreed to sell, and (ii) a
fraction the numerator of which is the number of Subject shares then issued
to the other Member and the denominator of which is the total number of
Subject Shares outstanding. The Offering Member shall notify the other
Members of the selling Member's agreement to sell Subject Shares to a third
party and the terms thereof, and the other Members shall exercise their
option to include any of their Shares in such sale, if at all, within the
time periods and generally in accordance with the procedures set forth
above concerning the other Members' right of first refusal; provided,
however, that if the other Members do not elect to include their
Shares pursuant to a Second Notice, a subsequent contract between the
Member and a third party shall not trigger any further tag-along rights
accruing to the other Members pursuant to this paragraph as the other
Members shall have relinquished their ability to include their Subject
Shares in such sale by the
<PAGE>
Offering Member.
4.5 Closing. The closing of any purchase and sale pursuant to
-------
Section IV shall take place at 10:00 a.m. on a date which is not less than
thirty (30) and not more than forty-five (45) days after the acceptance in
whole of the offer by one or more remaining Members. Such purchase and
sale shall be effected in the manner and upon the terms and conditions set
forth in Article V.
ARTICLE V
TRANSFERS OF STOCK; DEATH OF A STOCKHOLDER.
5.1 No Required Purchase and Sale of Stock -- Death or
--------------------------------------------------
Disability of Voter. In the event of the death or disability of the Voter,
- -------------------
the other Members shall not be obligated to purchase, and the legal repre-
sentatives of the Voter shall not be obligated to sell, any or all of the
Shares owned by the Voter on the date of his death or disability. The
Voter may transfer his Shares by bequest, which transfer shall be subject
to the Member's right of first refusal. Such right of first refusal shall
be noticed to and exercised by the Members within the time periods set
forth in Sections 4.2 and 4.3, and if exercised by the Members, shall be
for the Purchase Price.
Section 5.2 Condition on Certain Transfers. Any proposed transfer
------------------------------
by any Member hereto of any Subject Shares shall be conditioned on, and may
not be effectuated without, such transferee executing and delivering to the
Members an agreement pursuant to which the transferee agrees
unconditionally to be bound by the terms of this Agreement.
ARTICLE VI
THE VOTER
Section 6.1 Successor Voters. A Voter may at any time resign by
----------------
delivery to each of the Members a written resignation, to take effect ten
(10) days thereafter or upon the prior acceptance thereof by each of such
Members. There shall be no more than one Voter hereunder at all times.
Upon the resignation of a Voter, or upon the failure of a Voter to serve as
Voter because of his death or incapacity or otherwise, a Majority may
appoint a successor Voter. If the Majority should fail to do so, this
Agreement shall be deemed to have been terminated. Any successor Voter
shall have all rights granted to the Voter named herein and all references
herein to the Voter shall include not only the Voter named herein, but also
any successor Voter.
Section 6.2 Voter May Be A Company Official. Nothing in this
-------------------------------
Agreement shall preclude a Voter from (i) serving as an officer or director
of the Company, (ii) directly or indirectly receiving compensation,
commissions or other income from the Company, and (iii) directly or
indirectly contracting with the Company, or be or becoming pecuniarily
interested in any matter or transaction to which the Company may directly
or indirectly be concerned, all as fully and freely as though such Voter
were not a Voter hereunder.
<PAGE>
Section 6.3 Compensation of Voter. The Voter shall serve at all
---------------------
times without compensation. All costs incurred with respect to this
Agreement shall be borne equally among the Members.
ARTICLE VII
LEGENDS ON SUBJECT SHARES; FILING OF AGREEMENT
Section 7.1 Legend on Subject Shares. All certificates
------------------------
representing Subject Shares shall bear the following legend: THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING
AGREEMENT ON FILE AT THE OFFICES OF THE COMPANY.
Section 7.2 Filing of Agreement. Copies of this Agreement and of
-------------------
each amendment modification, supplement or addendum hereto shall be filed
in the principal office of the Company.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Joint Effort and Representations. The Agreement
--------------------------------
evidences the effort of each of the Members and shall not be more
constructively or harshly interpreted against any of the Members. Each of
the Members (i) has been advised that he should seek independent legal and
tax advice with regard to this Voting Agreement; and (ii) acknowledges that
Sills Cummis Zuckerman Radin Tischman Epstein & Gross, P.A. ("Sills
Cummis") has represented only the Company in connection with the
preparation and execution of the Company Agreement.
The Company and the Members understand and accept responsibility for
the fact that they have substantial conflicting interests. They have been
advised by Robert W. Burke, Esq. of Sills Cummis of their right to and need
for independent counsel and with full knowledge and understanding, have
declined to retain independent counsel. The parties have read and fully
understand the terms, conditions and provisions of this Agreement. They
acknowledge that all the terms, conditions and provisions of this Agreement
have been negotiated by them without any influence whatsoever by any
attorney associated with Sills Cummis. The parties acknowledge and
understand that this Agreement is necessary to preserve harmony and
continuity with respect to the management of the Company. As part of the
consideration for Sills Cummis performing the legal work necessary to
prepare this Agreement, the Company and the Members hereby jointly and
severally agree to indemnify Sills Cummis, and all its members,
shareholders, directors and employees who are such on the date of this
Agreement, or any time thereafter for, and hold such firm, its members,
shareholders, directors and employees harmless from, any claims made by
(and expenses incurred in defending against such claims) any of the parties
or any of their heirs, assignees, administrators, legal or personal
representatives, executors or successors based upon such firm's involvement
in the transactions which are the subject of this Agreement. This
<PAGE>
agreement to "hold harmless" shall be binding upon the Company and the
Members and their heirs, executors, administrators, successors and
assignees, and shall inure to the benefit of all members, shareholders,
directors and employees of Sills Cummis who are such on the date of this
Agreement, or any time thereafter, and all such members; shareholders',
directors' and employees' heirs, executors, administrators, successors and
assignees. Each of the Members and the Company understand that in any
dispute among the Members or any Member and the Company, Sills Cummis would
not represent them.
Section 8.2 Notice Provisions. (a) All notices or communications
-----------------
required to be given by any person pursuant to this Agreement shall be
effected in writing either by personal delivery or by registered or
certified mail, postage prepaid with return receipt requested, (i) if to a
Member hereto, to that Member's respective address as shown on the attached
Exhibit A, or (ii) if to the Voter, at the Company, The New York
Information and Technology Center, 55 Broad Street, New York, New York.
Notices delivered personally shall be deemed effective for all purposes of
this Agreement as of the date of actual receipt, mailed notices shall be
deemed effective for all purposes of this Agreement as of the date five (5)
calendar days after the date of mailing.
(b) Any person may designate a different address to which
notices or other communications must thereafter be addressed by giving
written notice of the different address to the Voter, in the case of a
Member hereto, and (ii) to each of the Members hereto, in the case of the
Voter.
Section 8.3 Amendment of Agreement. The provisions of this
----------------------
Agreement may be amended only by written consent of all of the Members.
Section 8.4 Enforceability of Agreement. (a) The provisions of
---------------------------
this Agreement shall be specifically enforceable in any court with
appropriate jurisdiction.
(b) Any Member that wilfully breaches any provision of this
Agreement shall, in addition to other penalties, damages or liabilities, be
responsible for and shall pay to each other party hereto an amount equal to
reasonable attorneys' fees actually incurred by such other party in his or
her respective efforts to enforce the terms of this Agreement.
Section 8.5 Interpretation of Agreement. This Agreement shall be
---------------------------
construed in its entirety, with no emphasis or meaning being given to the
headings or captions utilized in this Agreement or the placement of the
various provisions.
Section 8.6 Entire Agreement. This Agreement supersedes any and
----------------
all other agreements, either oral or in writing, between the parties with
respect to the subject matter of this Agreement.
Section 8.7 Severability of Provisions. Each provision of this
--------------------------
Agreement is intended to be severable. If any term or provision is
declared to be illegal or invalid for any reason, such illegality or
invalidity shall not affect the validity of enforceability of any other
provision of this Agreement.
<PAGE>
Section 8.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
Section 8.9 Execution in Counterparts. This Agreement and any
-------------------------
amendments hereto may be executed in any number of counterparts with the
same effect as if all of the parties had signed the same document.
- ------------------------------------- --------------------------
Matthew G. de Ganon, David J. Centner
in his individual
capacity and as the Voter
- ------------------------------------- --------------------------
Douglas E. Cleek Bradley K. Szollose
As to Section 8.1 only:
K2 DESIGN, INC., a Delaware corporation
By:
---------------------------
Its:
--------------------------
EXHIBIT 5.1
-----------
SILLS CUMMIS ZUCKERMAN RADIN TISCHMAN EPSTEIN & GROSS
ONE RIVERFRONT PLAZA
NEWARK, NEW JERSEY 07102-5400
(201) 643-5548
FAX: (201) 643-6500
June 26, 1996
K2 Design, Inc.
New York Information Technology Center
55 Broad Street, 7th Floor
New York, New York 10004
Ladies and Gentlemen:
We have acted as counsel to K2 Design, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing of a
Registration Statement on Form SB-2 (File No. 333-4319) for the
registration under the Securities Act of 1933, for public sale, of (i)
1,150,000 shares of the Company's Common Stock, par value $.01 per share, and
1,150,000 Warrants. Two Warrants entitle the holder to Purchase one share of
the Company's Common Stock, and (ii) the Common Stock issuable on exercise of
the Warrants. As such counsel, we are familiar with the Registration
Statement and have reviewed such additional documents pertaining to the
Company as we have deemed necessary for the purpose of rendering this
opinion. Based on the foregoing, we are of the opinion that:
1. The shares of Common Stock to be sold by the Company to the
Underwriter pursuant to the Underwriting Agreement, when issued and sold as
set forth in the Underwriting Agreement, will be legally issued, fully paid
and nonassessable.
2. The Warrants to be sold by the Company to the Underwriter
pursuant to the Underwriting Agreement, when issued and sold as set forth
in the Underwriting Agreement, will be legally issued, fully paid and
nonassessable. The shares of Common Stock issuable on the exercise of such
Warrants, when issued as set forth in the Warrants and the Warrant
Agreement, will be legally issued, fully paid and nonassessable.
3. The presently outstanding shares of Common Stock which may be
sold by the Selling Stockholders have been legally issued and are fully
paid and nonassessable.
4. The presently outstanding Warrants which may be sold by the
Selling Securityholders have been legally issued and are fully paid and
nonassessable. The shares of Common Stock issuable on the exercise of such
Warrants, when issued as contemplated in the Warrants, will be legally
issued, fully paid and nonassessable.
<PAGE>
K2 Design, Inc.
June 26, 1996
Page 2
We consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the prospectus included in the Registration Statement.
Very truly yours,
/s/ Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
CONSULTING AGREEMENT EXHIBIT 10.2
-------------------- ------------
This Agreement is made and entered into as of the 1st day of January,
1996 between K-2 Design, Inc., a New York corporation (the "Company") and
Harvey Berlent (the "Consultant"), c/o Berlent industries, Inc., 220
Fletcher Avenue Fort Lee, New Jersey 07024.
WHEREAS, the Consultant has substantial entrepreneurial experience in
computer related businesses and in other businesses; and
WHEREAS, the Company's management does not similarly have substantial
business experience and desires to retain the Consultant to provide
business consulting services.
NOW, THEREFORE, for good and valuable consideration, the Company and
the Consultant, hereby agree as follows:
1. The Consultant agrees during the term of this Agreement to
provide the Company with such strategic planning and management consulting
services ("General Business Consulting") and to provide the Company with
computer related consulting services ("Computer Consulting") as follows:
a. Business Consulting Services shall be provided pursuant to the
written instructions of the Company, which shall be subject to the
Consultant's approval, and the Consultant shall be paid the following
hourly rates for such services:
i. $85 per hour for the first 15 hours per month;
ii. $80 per hour for the next 25 hours per month; and
iii. $75 per hour for each additional hour thereafter.
b. The Consultant shall also provide not less than 5 hours per month
of Computer Consulting Services at such times as the Company shall
reasonably request and shall be paid for such services in accordance with
Section 4 hereof.
2. The Consultant shall not, during the term of this Agreement or
thereafter, divulge or use for the benefit of any other person(s),
partnership, association or corporation any information gained by virtue of
the Consultant's services under the terms of this Agreement that is deemed
confidential and proprietary by the Company.
3. The initial term of this Agreement shall be from January 1, 1996
until December 31, 1996 and thereafter shall
<PAGE>
continue on a month to month basis if the Company and the Consultant agree
in writing to so extend the Agreement.
4. For the Computer Consulting Services to be provided pursuant to
this Agreement by the Consultant, the Company shall (i) pay the Consultant
$21,000 in twelve equal monthly installments commencing September 1, 1996,
and (ii) upon the recapitalization of the Company into a Delaware
corporation with a wholly-owned New York corporation, grant to the
Consultant options to acquire up to 25,000 shares of common stock of the
Delaware corporation at an exercise price to be agreed upon by the Company
and the Consultant. The mutual execution of a stock option agreement
reflecting such grant shall be conclusive evidence of the Company's and the
Consultant's agreement as to all terms therein contained.
5. In the event that either party shall fail to comply with any of
the obligations required by such party herein, then the other party shall
have the right to terminate this Agreement at once.
6. Intentionally Omitted.
7. It is further understood and agreed that money damages would not
be a sufficient remedy for any breach of this Agreement by the Consultant
and that the Company shall be entitled to equitable relief, including
injunction and specific performance, as a remedy for any such breach. Such
remedies shall not be deemed to be the exclusive remedies for a breach by
the Consultant of this Agreement but shall be in addition to all other
remedies available at law or equity to the Company. In the event of
litigation relating to this Agreement, if a court of competent jurisdiction
determines that the Consultant has breached this Agreement, then the
Consultant shall be liable and pay to the Company the reasonable legal fees
incurred by the Company in connection with such litigation, including any
appeal therefrom.
8. This Agreement is for the benefit of the Company, and its
directors, officers, stockholders, owners, affiliates, and agents, and
shall be governed by and construed in accordance with the laws of the State
of New Jersey. The Consultant also hereby irrevocably and unconditionally
consents to submit to the exclusive jurisdiction of the Courts of the State
of New Jersey and the United States of America located in the State of New
Jersey for any actions, suits or proceedings arising out of or relating to
this agreement and the transactions contemplated hereby (and you agree not
to commence any action, suit or proceeding relating thereto except in such
courts), and further agrees that service of any process, summons, notice or
document by U.S. registered mail to the Consultant's address set forth
above shall be effective service of process for any action, suit
-2-
<PAGE>
or proceeding brought against you or us in any such court. The Consultant
hereby irrevocably and unconditionally waive any objection to the laying of
venue of any action, suit or proceeding arising out of this agreement or
the transactions contemplated hereby, in the courts of the State of New
Jersey or the United States of America located in the State of New Jersey,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
HARVEY BERLENT K-2 DESIGN, INC.
/s/ HARVEY BERLENT /s/ MATTHEW dE GANON
- ------------------------- ------------------------
-3-
FORM OF EMPLOYMENT AGREEMENT EXHIBIT 10.3
------------
AGREEMENT dated as of the ____ day of July, 1996 between K2 DESIGN,
INC., a Delaware corporation, with offices at The New York Information and
Technology Center, 55 Broad Street, New York, New York 10004 (together with
all of its subsidiaries, the "Corporation"), and David J. Centner (the
"Employee");
WHEREAS, the Employee is an Employee at will of the Corporation; and
WHEREAS, the Corporation and the Employee desire to change the salary
structure of the Employee heretofore implemented and further desire to
enter into a written employment agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt
and sufficiency of which are herein acknowledged, it is agreed as follows:
1. Duties. The Corporation hereby employs the Employee in the
------
executive capacity as Chairman of the Board, Chief Executive Officer and
Chief Financial Officer. The Employee's duties shall be substantially the
same as those during the course of the Employee's employment prior to the
date hereof, subject to the direction and control of the Corporation's
Board of Directors. The Employee accepts such employment and agrees to
devote his full time and effort to the services of the Corporation.
2. Term. The employment of the Employee by the Corporation shall
----
commence as of August __, 1996, and shall end on December 31, 1998 unless
otherwise extended by the parties hereto.
3. Compensation and Benefits. During the term of this Agreement,
-------------------------
the Corporation shall pay to the Employee a base salary of $90,000 per
annum during the remainder of 1996 and $117,500 and $127,500 during 1997
and 1998, respectively, for all services rendered by him in accordance with
the Corporation's payroll policies. The Employee shall continue to receive
substantially the same benefits and perquisites as those received by the
Employee during the course of the Employee's employment prior to the date
hereof.
As soon as practicable after the close of each of the Corporation's
fiscal quarters during the Employee's employment hereunder, the Corporation
shall pay the Employee a bonus, which bonus shall be equal to 1.88% of the
Corporation's Pre-Tax Profits (as hereinafter defined), subject to adjustment
based upon the results of the Corporation's year-end audit. "Pre-Tax Profits"
means the Corporation's income before provision for federal income taxes and
before the deduction of any bonus paid hereunder or to any other employee under
a similar provision in an employment agreement.
If the Employee's employment shall be terminated pursuant to Sections
7(c) or (d), then the Employee shall be entitled to a bonus calculated in
accordance with the preceding paragraph, multiplied by a fraction, the
numerator of which shall be the number of days during such fiscal year that
the Employee was employed hereunder and the denominator of which shall be
the 360. This amount shall be paid as soon as practicable following the
close of the Corporation's fiscal year ending next following the
termination.
-1-
<PAGE>
4. Conflict of Interest. The Employee agrees that, while payments
--------------------
are being made to the Employee hereunder, the Employee will not, directly
or indirectly, engage in or have a substantial interest in any business
which at the time shall be in whole or substantial part competitive with
any substantial part of the business carried on by the Corporation now or
at the time until this Agreement shall be terminated, either for the
Employee's own benefit or for or with any person, firm or corporation
whatsoever other than the Corporation.
5. Confidentiality. The Employee agrees that the Employee will not,
---------------
at any time during or after the termination of employment with the
Corporation, reveal, divulge or make known to any person, firm,
corporation, or other business organization (other than the Corporation),
or use for its account, any information that relates to the Corporation's
existing or reasonably foreseeable business which is not readily disclosed
by inspection of the Corporation's products, including, but not limited to,
ideas, inventions, discoveries, trade secrets, confidential information,
good will, improvements, information contained in or relating to the
Corporation's product designs, manufacturing processes and techniques,
marketing plans or proposals, sources and prices of inventory, equipment
and all other business related items, financial information, personnel
information and customer information (collectively, "Proprietary
Information"). Proprietary Information includes any such information,
whether or not obtained by the Employee with the knowledge and permission
of the Corporation, whether or not developed, devised or otherwise created
in whole or in part by the Employee's efforts, and whether or not a matter
of public knowledge unless as a result of authorized disclosure. The
Employee further agrees to retain such knowledge and information which the
Employee acquires and develops during the Employee's employment respecting
such Proprietary Information in trust for the sole benefit of the
Corporation and its successors and assigns.
6. Non-Competition. (a) The Employee agrees to not, (i) at any
---------------
time during employment with the Corporation, and (ii) if Employee's
employment with the Corporation is terminated pursuant to Section 7(a) or
(b) or Employee terminates his employment hereunder, then through August __,
1998, (the "Prohibited Period"), directly or indirectly enter into,
participate in or engage in any business, or the solicitation of any
business, which is competitive with the business of the Corporation within
the territories in which the Corporation now or during the Prohibited
Period conducts marketing or operational activities, whether as an
individual on the Employee's own account, as a partner or joint venturer,
as the owner of an interest in, or as a director or officer of, any entity,
as an Employee, agent, salesman or consultant of any person or entity, or
otherwise; and (b) the Employee further agrees to not, at any time during
or after the termination of the Employee's employment with the Corporation
(i) induce or attempt to induce any Employee of the Corporation to leave
the Corporation's employ, or (ii) interfere with the relationship of the
Corporation with any person or entity who or which at any time during its
employment with the Corporation was an Employee or customer of, or in the
habit of dealing with the Corporation.
7. Termination. At the written election of the Corporation, this
-----------
Agreement shall terminate and the obligations and covenants of the
Corporation and the Employee hereunder (except those pursuant to Sections 5
and 6, which shall survive termination of this Agreement, and except for
those previously incurred or accrued) shall be of no further force and
effect upon the earliest to occur of the following (whether occurring prior
to or after any renewal hereof): (a) the repeated failure by the Employee
to follow the reasonable directives of the Board of Directors of the
Corporation that are not inconsistent with the provisions of this
Agreement; (b) the commission by the Employee of a felony, the result of
which is to discredit the Corporation in the eyes of the public generally
or to cause a material adverse effect upon the Corporation's business; for
purposes of this (b), in absence
-2-
<PAGE>
of a plea of guilty or nolo contendere by the Employee, or a conviction
after the exhaustion of all available appeals, the Employee will be
conclusively presumed not to have committed any felony; (c) the death of
the Employee, (in which event any bonus in respect of the current year
shall be prorated through the date of death in accordance with Section 3
hereof); and (d) the permanent disability of the Employee ("permanent
disability" shall mean the Employee's inability to perform the duties and
responsibilities hereunder by reason of physical or mental injury or
illness for any 9 months in any consecutive 12 month period.
8. Miscellaneous. (a) All notices, requests, offers, demands and
-------------
other communications hereunder shall be in writing and shall be effectively
given or made when mailed by registered or certified mail, return receipt
requested, and directed to the party at the address given herein or to such
address as either party may hereafter designate in writing; (b) this
Agreement is being delivered and executed in the State of New Jersey and
shall be construed in accordance with and governed by its laws; (c) this
Agreement shall be binding upon and inure to the benefit of the parties
hereto, their heirs, executors, successors and assigns. This Agreement
shall not be assignable by the Employee, and shall be assignable by the
Corporation only to any corporation or other entity resulting from the
reorganization, merger or consolidation of the Corporation with any other
corporation or entity or any corporation or entity to which the Corporation
may sell all or substantially all of its assets; (d) this Agreement
constitutes the entire understanding between the parties hereto and may not
be modified, amended, altered or changed except in writing signed by the
parties; (e) if any provision of this Agreement or the application thereof
to any person(s) or circumstance(s) shall be invalid or unenforceable to
any extent, (1) the remainder of this Agreement and the application of such
provision to other person(s) or circumstance(s) shall not be affected
thereby, and (2) each such provision shall be enforced to the greatest
extent permitted by law; (f) no waiver or any breach or failure to perform
the terms, covenants and conditions of this Agreement shall be binding
upon the parties hereto unless the same shall be in writing. Any such
waiver shall be for one time only and shall not be for any future breach or
failure to perform under the terms of this Agreement; (g) preparation of
this Agreement has been a joint effort of the parties and this Agreement
shall not be construed more severely against either party; and (h) it is
understood, agreed and acknowledged by the Employee and the Corporation
that any threatened or actual breach by the Employee of any of the
agreements contained in this Agreement may cause irreparable damage to the
Corporation and that the remedy at law therefor may be inadequate and that
the Corporation shall be entitled to injunctive and other equitable relief
(as well as damages, if applicable) in the case of any threatened or actual
breach thereof. The Corporation may in its sole discretion apply to any
court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief in order to enforce or prevent any violations of
the provisions of Section 5 and 6 of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
K2 DESIGN, INC.
By:______________________________ ________________________________
DAVID J. CENTNER
-3-
FORM OF EMPLOYMENT AGREEMENT EXHIBIT 10.4
------------
AGREEMENT dated as of the ____ day of July, 1996 between K2 DESIGN,
INC., a Delaware corporation, with offices at The New York Information and
Technology Center, 55 Broad Street, New York, New York 10004 (together with
all of its subsidiaries, the "Corporation"), and Matthew G. de Ganon (the
"Employee");
WHEREAS, the Employee is an Employee at will of the Corporation; and
WHEREAS, the Corporation and the Employee desire to change the salary
structure of the Employee heretofore implemented and further desire to
enter into a written employment agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt
and sufficiency of which are herein acknowledged, it is agreed as follows:
1. Duties. The Corporation hereby employs the Employee in the
------
executive capacity as Vice Chairman and Chief Operating Officer. The
Employee's duties shall be substantially the same as those during the
course of the Employee's employment prior to the date hereof, subject to
the direction and control of the Corporation's Board of Directors. The
Employee accepts such employment and agrees to devote his full time and
effort to the services of the Corporation.
2. Term. The employment of the Employee by the Corporation shall
----
commence as of August __, 1996, and shall end on December 31, 1998 unless
otherwise extended by the parties hereto.
3. Compensation and Benefits. During the term of this Agreement,
-------------------------
the Corporation shall pay to the Employee a base salary of $90,000 per
annum during the remainder of 1996 and $117,500 and $127,500 during 1997 and
1998, respectively, for all services rendered by him in accordance with the
Corporation's payroll policies. The Employee shall continue to receive
substantially the same benefits and perquisites as those received by the
Employee during the course of the Employee's employment prior to the date
hereof.
As soon as practicable after the close of each of the Corporation's
fiscal quarters during the Employee's employment hereunder, the Corporation
shall pay the Employee a bonus, which bonus shall be equal to 1.88% of the
Corporation's Pre-Tax Profits (as hereinafter defined), subject to adjustment
based upon the results of the Corporation's year-end audit. "Pre-Tax Profits"
means the Corporation's income before provision for federal income taxes and
before the deduction of any bonus paid hereunder or to any other employee under
a similar provision in an employment agreement.
If the Employee's employment shall be terminated pursuant to Sections
7(c) or (d), then the Employee shall be entitled to a bonus calculated in
accordance with the preceding paragraph, multiplied by a fraction, the
numerator of which shall be the number of days during such fiscal year that
the Employee was employed hereunder and the denominator of which shall be
the 360. This amount shall be paid as soon as practicable following the
close of the Corporation's fiscal year ending next following the
termination.
-1-
<PAGE>
4. Conflict of Interest. The Employee agrees that, while payments
--------------------
are being made to the Employee hereunder, the Employee will not, directly
or indirectly, engage in or have a substantial interest in any business
which at the time shall be in whole or substantial part competitive with
any substantial part of the business carried on by the Corporation now or
at the time until this Agreement shall be terminated, either for the
Employee's own benefit or for or with any person, firm or corporation
whatsoever other than the Corporation.
5. Confidentiality. The Employee agrees that the Employee will not,
---------------
at any time during or after the termination of employment with the
Corporation, reveal, divulge or make known to any person, firm,
corporation, or other business organization (other than the Corporation),
or use for its account, any information that relates to the Corporation's
existing or reasonably foreseeable business which is not readily disclosed
by inspection of the Corporation's products, including, but not limited to,
ideas, inventions, discoveries, trade secrets, confidential information,
good will, improvements, information contained in or relating to the
Corporation's product designs, manufacturing processes and techniques,
marketing plans or proposals, sources and prices of inventory, equipment
and all other business related items, financial information, personnel
information and customer information (collectively, "Proprietary
Information"). Proprietary Information includes any such information,
whether or not obtained by the Employee with the knowledge and permission
of the Corporation, whether or not developed, devised or otherwise created
in whole or in part by the Employee's efforts, and whether or not a matter
of public knowledge unless as a result of authorized disclosure. The
Employee further agrees to retain such knowledge and information which the
Employee acquires and develops during the Employee's employment respecting
such Proprietary Information in trust for the sole benefit of the
Corporation and its successors and assigns.
6. Non-Competition. (a) The Employee agrees to not, (i) at any
---------------
time during employment with the Corporation, and (ii) if Employee's
employment with the Corporation is terminated pursuant to Section 7(a) or
(b) or Employee terminates his employment hereunder, then through July __,
1998, (the "Prohibited Period"), directly or indirectly enter into,
participate in or engage in any business, or the solicitation of any
business, which is competitive with the business of the Corporation within
the territories in which the Corporation now or during the Prohibited
Period conducts marketing or operational activities, whether as an
individual on the Employee's own account, as a partner or joint venturer,
as the owner of an interest in, or as a director or officer of, any entity,
as an Employee, agent, salesman or consultant of any person or entity, or
otherwise; and (b) the Employee further agrees to not, at any time during
or after the termination of the Employee's employment with the Corporation
(i) induce or attempt to induce any Employee of the Corporation to leave
the Corporation's employ, or (ii) interfere with the relationship of the
Corporation with any person or entity who or which at any time during its
employment with the Corporation was an Employee or customer of, or in the
habit of dealing with the Corporation.
7. Termination. At the written election of the Corporation, this
-----------
Agreement shall terminate and the obligations and covenants of the
Corporation and the Employee hereunder (except those pursuant to Sections 5
and 6, which shall survive termination of this Agreement, and except for
those previously incurred or accrued) shall be of no further force and
effect upon the earliest to occur of the following (whether occurring prior
to or after any renewal hereof): (a) the repeated failure by the Employee
to follow the reasonable directives of the Board of Directors of the
Corporation that are not inconsistent with the provisions of this
Agreement; (b) the commission by the Employee of a felony, the result of
which is to discredit the Corporation in the eyes of the public generally
or to cause a material adverse effect upon the Corporation's business; for
purposes of this (b), in absence
-2-
<PAGE>
of a plea of guilty or nolo contendere by the Employee, or a conviction
after the exhaustion of all available appeals, the Employee will be
conclusively presumed not to have committed any felony; (c) the death of
the Employee, (in which event any bonus in respect of the current year
shall be prorated through the date of death in accordance with Section 3
hereof); and (d) the permanent disability of the Employee ("permanent
disability" shall mean the Employee's inability to perform the duties and
responsibilities hereunder by reason of physical or mental injury or
illness for any 9 months in any consecutive 12 month period.
8. Miscellaneous. (a) All notices, requests, offers, demands and
-------------
other communications hereunder shall be in writing and shall be effectively
given or made when mailed by registered or certified mail, return receipt
requested, and directed to the party at the address given herein or to such
address as either party may hereafter designate in writing; (b) this
Agreement is being delivered and executed in the State of New Jersey and
shall be construed in accordance with and governed by its laws; (c) this
Agreement shall be binding upon and inure to the benefit of the parties
hereto, their heirs, executors, successors and assigns. This Agreement
shall not be assignable by the Employee, and shall be assignable by the
Corporation only to any corporation or other entity resulting from the
reorganization, merger or consolidation of the Corporation with any other
corporation or entity or any corporation or entity to which the Corporation
may sell all or substantially all of its assets; (d) this Agreement
constitutes the entire understanding between the parties hereto and may not
be modified, amended, altered or changed except in writing signed by the
parties; (e) if any provision of this Agreement or the application thereof
to any person(s) or circumstance(s) shall be invalid or unenforceable to
any extent, (1) the remainder of this Agreement and the application of such
provision to other person(s) or circumstance(s) shall not be affected
thereby, and (2) each such provision shall be enforced to the greatest
extent permitted by law; (f) no waiver or any breach or failure to perform
the terms, covenants and conditions of this Agreement shall be binding
upon the parties hereto unless the same shall be in writing. Any such
waiver shall be for one time only and shall not be for any future breach or
failure to perform under the terms of this Agreement; (g) preparation of
this Agreement has been a joint effort of the parties and this Agreement
shall not be construed more severely against either party; and (h) it is
understood, agreed and acknowledged by the Employee and the Corporation
that any threatened or actual breach by the Employee of any of the
agreements contained in this Agreement may cause irreparable damage to the
Corporation and that the remedy at law therefor may be inadequate and that
the Corporation shall be entitled to injunctive and other equitable relief
(as well as damages, if applicable) in the case of any threatened or actual
breach thereof. The Corporation may in its sole discretion apply to any
court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief in order to enforce or prevent any violations of
the provisions of Section 5 and 6 of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
K2 DESIGN, INC.
By:______________________________ ________________________________
MATTHEW dE GANON
-3-
FORM OF EMPLOYMENT AGREEMENT EXHIBIT 10.5
------------
AGREEMENT dated as of the ____ day of July, 1996 between K2 DESIGN,
INC., a Delaware corporation, with offices at The New York Information and
Technology Center, 55 Broad Street, New York, New York 10004 (together with
all of its subsidiaries, the "Corporation"), and Bradley K. Szollose (the
"Employee");
WHEREAS, the Employee is an Employee at will of the Corporation; and
WHEREAS, the Corporation and the Employee desire to change the salary
structure of the Employee heretofore implemented and further desire to
enter into a written employment agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt
and sufficiency of which are herein acknowledged, it is agreed as follows:
1. Duties. The Corporation hereby employs the Employee in the
------
executive capacity as Executive Vice President - Marketing, Treasurer and
Secretary. The Employee's duties shall be substantially the same as those
during the course of the Employee's employment prior to the date hereof,
subject to the direction and control of the Corporation's Board of
Directors. The Employee accepts such employment and agrees to devote his
full time and effort to the services of the Corporation.
2. Term. The employment of the Employee by the Corporation shall
----
commence as of August __, 1996, and shall end on December 31, 1998 unless
otherwise extended by the parties hereto.
3. Compensation and Benefits. During the term of this Agreement,
-------------------------
the Corporation shall pay to the Employee a base salary of $90,000 per
annum during the remainder of 1996 and $117,500 and $127,500 during 1997
and 1998, respectively, for all services rendered by him in accordance with
the Corporation's payroll policies. The Employee shall continue to receive
substantially the same benefits and perquisites as those received by the
Employee during the course of the Employee's employment prior to the date
hereof.
As soon as practicable after the close of each of the Corporation's
fiscal quarters during the Employee's employment hereunder, the Corporation
shall pay the Employee a bonus, which bonus shall be equal to 1.88% of the
Corporation's Pre-Tax Profits (as hereinafter defined), subject to adjustment
based upon the results of the Corporation's year-end audit. "Pre-Tax Profits"
means the Corporation's income before provision for federal income taxes and
before the deduction of any bonus paid hereunder or to any other employee under
a similar provision in an employment agreement.
If the Employee's employment shall be terminated pursuant to Sections
7(c) or (d), then the Employee shall be entitled to a bonus calculated in
accordance with the preceding paragraph, multiplied by a fraction, the
numerator of which shall be the number of days during such fiscal year that
the Employee was employed hereunder and the denominator of which shall be
the 360. This amount shall be paid as soon as practicable following the
close of the Corporation's fiscal year ending next following the
termination.
-1-
<PAGE>
4. Conflict of Interest. The Employee agrees that, while payments
--------------------
are being made to the Employee hereunder, the Employee will not, directly
or indirectly, engage in or have a substantial interest in any business
which at the time shall be in whole or substantial part competitive with
any substantial part of the business carried on by the Corporation now or
at the time until this Agreement shall be terminated, either for the
Employee's own benefit or for or with any person, firm or corporation
whatsoever other than the Corporation.
5. Confidentiality. The Employee agrees that the Employee will not,
---------------
at any time during or after the termination of employment with the
Corporation, reveal, divulge or make known to any person, firm,
corporation, or other business organization (other than the Corporation),
or use for its account, any information that relates to the Corporation's
existing or reasonably foreseeable business which is not readily disclosed
by inspection of the Corporation's products, including, but not limited to,
ideas, inventions, discoveries, trade secrets, confidential information,
good will, improvements, information contained in or relating to the
Corporation's product designs, manufacturing processes and techniques,
marketing plans or proposals, sources and prices of inventory, equipment
and all other business related items, financial information, personnel
information and customer information (collectively, "Proprietary
Information"). Proprietary Information includes any such information,
whether or not obtained by the Employee with the knowledge and permission
of the Corporation, whether or not developed, devised or otherwise created
in whole or in part by the Employee's efforts, and whether or not a matter
of public knowledge unless as a result of authorized disclosure. The
Employee further agrees to retain such knowledge and information which the
Employee acquires and develops during the Employee's employment respecting
such Proprietary Information in trust for the sole benefit of the
Corporation and its successors and assigns.
6. Non-Competition. (a) The Employee agrees to not, (i) at any
---------------
time during employment with the Corporation, and (ii) if Employee's
employment with the Corporation is terminated pursuant to Section 7(a) or
(b) or Employee terminates his employment hereunder, then through July __,
1998, (the "Prohibited Period"), directly or indirectly enter into,
participate in or engage in any business, or the solicitation of any
business, which is competitive with the business of the Corporation within
the territories in which the Corporation now or during the Prohibited
Period conducts marketing or operational activities, whether as an
individual on the Employee's own account, as a partner or joint venturer,
as the owner of an interest in, or as a director or officer of, any entity,
as an Employee, agent, salesman or consultant of any person or entity, or
otherwise; and (b) the Employee further agrees to not, at any time during
or after the termination of the Employee's employment with the Corporation
(i) induce or attempt to induce any Employee of the Corporation to leave
the Corporation's employ, or (ii) interfere with the relationship of the
Corporation with any person or entity who or which at any time during its
employment with the Corporation was an Employee or customer of, or in the
habit of dealing with the Corporation.
7. Termination. At the written election of the Corporation, this
-----------
Agreement shall terminate and the obligations and covenants of the
Corporation and the Employee hereunder (except those pursuant to Sections 5
and 6, which shall survive termination of this Agreement, and except for
those previously incurred or accrued) shall be of no further force and
effect upon the earliest to occur of the following (whether occurring prior
to or after any renewal hereof): (a) the repeated failure by the Employee
to follow the reasonable directives of the Board of Directors of the
Corporation that are not inconsistent with the provisions of this
Agreement; (b) the commission by the Employee of a felony, the result of
which is to discredit the Corporation in the eyes of the public generally
or to cause a material adverse effect upon the Corporation's business; for
purposes of this (b), in absence
-2-
<PAGE>
of a plea of guilty or nolo contendere by the Employee, or a conviction
after the exhaustion of all available appeals, the Employee will be
conclusively presumed not to have committed any felony; (c) the death of
the Employee, (in which event any bonus in respect of the current year
shall be prorated through the date of death in accordance with Section 3
hereof); and (d) the permanent disability of the Employee ("permanent
disability" shall mean the Employee's inability to perform the duties and
responsibilities hereunder by reason of physical or mental injury or
illness for any 9 months in any consecutive 12 month period.
8. Miscellaneous. (a) All notices, requests, offers, demands and
-------------
other communications hereunder shall be in writing and shall be effectively
given or made when mailed by registered or certified mail, return receipt
requested, and directed to the party at the address given herein or to such
address as either party may hereafter designate in writing; (b) this
Agreement is being delivered and executed in the State of New Jersey and
shall be construed in accordance with and governed by its laws; (c) this
Agreement shall be binding upon and inure to the benefit of the parties
hereto, their heirs, executors, successors and assigns. This Agreement
shall not be assignable by the Employee, and shall be assignable by the
Corporation only to any corporation or other entity resulting from the
reorganization, merger or consolidation of the Corporation with any other
corporation or entity or any corporation or entity to which the Corporation
may sell all or substantially all of its assets; (d) this Agreement
constitutes the entire understanding between the parties hereto and may not
be modified, amended, altered or changed except in writing signed by the
parties; (e) if any provision of this Agreement or the application thereof
to any person(s) or circumstance(s) shall be invalid or unenforceable to
any extent, (1) the remainder of this Agreement and the application of such
provision to other person(s) or circumstance(s) shall not be affected
thereby, and (2) each such provision shall be enforced to the greatest
extent permitted by law; (f) no waiver or any breach or failure to perform
the terms, covenants and conditions of this Agreement shall be binding
upon the parties hereto unless the same shall be in writing. Any such
waiver shall be for one time only and shall not be for any future breach or
failure to perform under the terms of this Agreement; (g) preparation of
this Agreement has been a joint effort of the parties and this Agreement
shall not be construed more severely against either party; and (h) it is
understood, agreed and acknowledged by the Employee and the Corporation
that any threatened or actual breach by the Employee of any of the
agreements contained in this Agreement may cause irreparable damage to the
Corporation and that the remedy at law therefor may be inadequate and that
the Corporation shall be entitled to injunctive and other equitable relief
(as well as damages, if applicable) in the case of any threatened or actual
breach thereof. The Corporation may in its sole discretion apply to any
court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief in order to enforce or prevent any violations of
the provisions of Section 5 and 6 of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
K2 DESIGN, INC.
By:______________________________ ________________________________
BRADLEY K. SZOLLOSE
-3-
FORM OF EMPLOYMENT AGREEMENT EXHIBIT 10.6
------------
AGREEMENT dated as of the ____ day of July, 1996 between K2 DESIGN,
INC., a Delaware corporation, with offices at The New York Information and
Technology Center, 55 Broad Street, New York, New York 10004 (together with
all of its subsidiaries, the "Corporation"), and Douglas E. Cleek (the
"Employee");
WHEREAS, the Employee is an Employee at will of the Corporation; and
WHEREAS, the Corporation and the Employee desire to change the salary
structure of the Employee heretofore implemented and further desire to
enter into a written employment agreement;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt
and sufficiency of which are herein acknowledged, it is agreed as follows:
1. Duties. The Corporation hereby employs the Employee in the
------
executive capacity as Executive Vice President - Chief Creative Officer.
The Employee's duties shall be substantially the same as those during the
course of the Employee's employment prior to the date hereof, subject to
the direction and control of the Corporation's Board of Directors. The
Employee accepts such employment and agrees to devote his full time and
effort to the services of the Corporation.
2. Term. The employment of the Employee by the Corporation shall
----
commence as of August __, 1996, and shall end on December 31, 1998 unless
otherwise extended by the parties hereto.
3. Compensation and Benefits. During the term of this Agreement,
-------------------------
the Corporation shall pay to the Employee a base salary of $90,000 per
annum during the remainder of 1996 and $117,500 and $127,500 during 1997
and 1998, respectively, for all services rendered by him in accordance with the
Corporation's payroll policies. The Employee shall continue to receive
substantially the same benefits and perquisites as those received by the
Employee during the course of the Employee's employment prior to the date
hereof.
As soon as practicable after the close of each of the Corporation's
fiscal quarters during the Employee's employment hereunder, the Corporation
shall pay the Employee a bonus, which bonus shall be equal to 1.88% of the
Corporation's Pre-Tax Profits (as hereinafter defined), subject to adjustment
based upon the results of the Corporation's year-end audit. "Pre-Tax Profits"
means the Corporation's income before provision for federal income taxes and
before the deduction of any bonus paid hereunder or to any other employee under
a similar provision in an employment agreement.
If the Employee's employment shall be terminated pursuant to Sections
7(c) or (d), then the Employee shall be entitled to a bonus calculated in
accordance with the preceding paragraph, multiplied by a fraction, the
numerator of which shall be the number of days during such fiscal year that
the Employee was employed hereunder and the denominator of which shall be
the 360. This amount shall be paid as soon as practicable following the
close of the Corporation's fiscal year ending next following the
termination.
-1-
<PAGE>
4. Conflict of Interest. The Employee agrees that, while payments
--------------------
are being made to the Employee hereunder, the Employee will not, directly
or indirectly, engage in or have a substantial interest in any business
which at the time shall be in whole or substantial part competitive with
any substantial part of the business carried on by the Corporation now or
at the time until this Agreement shall be terminated, either for the
Employee's own benefit or for or with any person, firm or corporation
whatsoever other than the Corporation.
5. Confidentiality. The Employee agrees that the Employee will not,
---------------
at any time during or after the termination of employment with the
Corporation, reveal, divulge or make known to any person, firm,
corporation, or other business organization (other than the Corporation),
or use for its account, any information that relates to the Corporation's
existing or reasonably foreseeable business which is not readily disclosed
by inspection of the Corporation's products, including, but not limited to,
ideas, inventions, discoveries, trade secrets, confidential information,
good will, improvements, information contained in or relating to the
Corporation's product designs, manufacturing processes and techniques,
marketing plans or proposals, sources and prices of inventory, equipment
and all other business related items, financial information, personnel
information and customer information (collectively, "Proprietary
Information"). Proprietary Information includes any such information,
whether or not obtained by the Employee with the knowledge and permission
of the Corporation, whether or not developed, devised or otherwise created
in whole or in part by the Employee's efforts, and whether or not a matter
of public knowledge unless as a result of authorized disclosure. The
Employee further agrees to retain such knowledge and information which the
Employee acquires and develops during the Employee's employment respecting
such Proprietary Information in trust for the sole benefit of the
Corporation and its successors and assigns.
6. Non-Competition. (a) The Employee agrees to not, (i) at any
---------------
time during employment with the Corporation, and (ii) if Employee's
employment with the Corporation is terminated pursuant to Section 7(a) or
(b) or Employee terminates his employment hereunder, then through July __,
1998, (the "Prohibited Period"), directly or indirectly enter into,
participate in or engage in any business, or the solicitation of any
business, which is competitive with the business of the Corporation within
the territories in which the Corporation now or during the Prohibited
Period conducts marketing or operational activities, whether as an
individual on the Employee's own account, as a partner or joint venturer,
as the owner of an interest in, or as a director or officer of, any entity,
as an Employee, agent, salesman or consultant of any person or entity, or
otherwise; and (b) the Employee further agrees to not, at any time during
or after the termination of the Employee's employment with the Corporation
(i) induce or attempt to induce any Employee of the Corporation to leave
the Corporation's employ, or (ii) interfere with the relationship of the
Corporation with any person or entity who or which at any time during its
employment with the Corporation was an Employee or customer of, or in the
habit of dealing with the Corporation.
7. Termination. At the written election of the Corporation, this
-----------
Agreement shall terminate and the obligations and covenants of the
Corporation and the Employee hereunder (except those pursuant to Sections 5
and 6, which shall survive termination of this Agreement, and except for
those previously incurred or accrued) shall be of no further force and
effect upon the earliest to occur of the following (whether occurring prior
to or after any renewal hereof): (a) the repeated failure by the Employee
to follow the reasonable directives of the Board of Directors of the
Corporation that are not inconsistent with the provisions of this
Agreement; (b) the commission by the Employee of a felony, the result of
which is to discredit the Corporation in the eyes of the public generally
or to cause a material adverse effect upon the Corporation's business; for
purposes of this (b), in absence
-2-
<PAGE>
of a plea of guilty or nolo contendere by the Employee, or a conviction
after the exhaustion of all available appeals, the Employee will be
conclusively presumed not to have committed any felony; (c) the death of
the Employee, (in which event any bonus in respect of the current year
shall be prorated through the date of death in accordance with Section 3
hereof); and (d) the permanent disability of the Employee ("permanent
disability" shall mean the Employee's inability to perform the duties and
responsibilities hereunder by reason of physical or mental injury or
illness for any 9 months in any consecutive 12 month period.
8. Miscellaneous. (a) All notices, requests, offers, demands and
-------------
other communications hereunder shall be in writing and shall be effectively
given or made when mailed by registered or certified mail, return receipt
requested, and directed to the party at the address given herein or to such
address as either party may hereafter designate in writing; (b) this
Agreement is being delivered and executed in the State of New Jersey and
shall be construed in accordance with and governed by its laws; (c) this
Agreement shall be binding upon and inure to the benefit of the parties
hereto, their heirs, executors, successors and assigns. This Agreement
shall not be assignable by the Employee, and shall be assignable by the
Corporation only to any corporation or other entity resulting from the
reorganization, merger or consolidation of the Corporation with any other
corporation or entity or any corporation or entity to which the Corporation
may sell all or substantially all of its assets; (d) this Agreement
constitutes the entire understanding between the parties hereto and may not
be modified, amended, altered or changed except in writing signed by the
parties; (e) if any provision of this Agreement or the application thereof
to any person(s) or circumstance(s) shall be invalid or unenforceable to
any extent, (1) the remainder of this Agreement and the application of such
provision to other person(s) or circumstance(s) shall not be affected
thereby, and (2) each such provision shall be enforced to the greatest
extent permitted by law; (f) no waiver or any breach or failure to perform
the terms, covenants and conditions of this Agreement shall be binding
upon the parties hereto unless the same shall be in writing. Any such
waiver shall be for one time only and shall not be for any future breach or
failure to perform under the terms of this Agreement; (g) preparation of
this Agreement has been a joint effort of the parties and this Agreement
shall not be construed more severely against either party; and (h) it is
understood, agreed and acknowledged by the Employee and the Corporation
that any threatened or actual breach by the Employee of any of the
agreements contained in this Agreement may cause irreparable damage to the
Corporation and that the remedy at law therefor may be inadequate and that
the Corporation shall be entitled to injunctive and other equitable relief
(as well as damages, if applicable) in the case of any threatened or actual
breach thereof. The Corporation may in its sole discretion apply to any
court of law or equity of competent jurisdiction for specific performance
and/or injunctive relief in order to enforce or prevent any violations of
the provisions of Section 5 and 6 of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
K2 DESIGN, INC.
By:______________________________ ________________________________
DOUGLAS E. CLEEK
-3-
Exhibit 10.8
FINANCIAL CONSULTING AGREEMENT
The parties to this Agreement are Donald & Co. Securities Inc., a
__________ corporation (the "Consultant"), and K2 Design, Inc., a Delaware
corporation (the "Company"). The Company intends to undertake a public
offering of its securities (the "Offering") and desires to contract with
the Consultant for certain financial services, and the Consultant is
willing to render such services as hereinafter more fully set forth.
THEREFORE, in consideration of the mutual agreements and covenants set
forth in this Agreement, the parties agree as follows:
1. Engagement of the Consultant. The Company hereby engages and
-----------------------------
retains the Consultant to render to the Company the financial services
described in Section 2 hereof (the "Financial Services") for the period of
two years commencing on the consummation of the Offering (the "Consulting
Period").
2. Description of Financial Services. The Financial Services
----------------------------------
rendered by the Consultant hereunder shall consist of consultations with
management of the Company which consultations management may from time to
time require during the term of this Agreement, provided that the
Consultant shall not be required to undertake duties not reasonably within
the scope of the financial advisory or investment banking services
contemplated by this Agreement. It is understood and acknowledged by the
parties that the value of the Consultant's advice is not readily
quantifiable, and that the Consultant shall be obligated to render advice
upon the request of the Company, in good faith, but shall not be obligated
to spend any specific amount of time so doing. The Consultant's duties may
include, but will not necessarily be limited to, providing recommendations
concerning the following financial and related matters:
A. Disseminating information about the Company to the
investment community at large;
B. Rendering advice and assistance in connection with the
preparation of annual and interim reports and press
releases;
C. Assisting in the Company's financial public relations;
D. Arranging, on behalf of the Company, at appropriate times,
meetings with securities analysts of major regional
investment banking firms;
E. Rendering advice with regard to internal operations,
including:
1. the formation of corporate goals and their
implementation;
<PAGE>
2. the Company's financial structure and its divisions or
subsidiaries;
3. securing, when and if necessary and possible,
additional financing through banks and/or insurance
companies; and
4. corporate organization and personnel; and
F. Rendering advise with regard to any of the following
corporate finance matters:
1. changes in the capitalization of the Company;
2. changes in the Company's corporate structure;
3. redistribution of holdings of the Company's stock;
4. offerings of securities in public transactions;
5. sales of securities in private transactions;
6. alternative uses of corporate assets;
7. structure and use of debt; and
8. sales of stock by insiders pursuant to Rule 144 or
otherwise.
In addition to the foregoing, the Consultant agrees to furnish
advice to the Company in connection with (i) the acquisition and/or merger
of or with other companies, divestiture or any other similar transaction,
or the sale of the Company itself (or any significant percentage, assets,
subsidiaries or affiliates thereof) (a "Transaction"), and (ii) bank
financings or any other financing from financial institutions (including
but not limited to liens of credit, performance bonds, letters of credit,
loans or other financings not provided for in Paragraph 4 hereof).
3. Payment for Services Rendered. The Company agrees to pay the
-------------------------------
Consultant for the Financial Services hereunder the sum of $60,000 per
annum; $30,000 payable upon consummation of the Offering and $2,500 per
month for the first (12) months subsequent to the consummation of the
Offering. In addition, if the Company requests that the Consultant provide
financial services to the Company not contemplated by this Agreement, the
Consultant shall be compensated for such additional financial services in
an amount agreed to by the Consultant and the Company.
4. Additional Services. In the event that any Transaction is
--------------------
directly originated by the Consultant during the term of this Agreement,
the Company shall pay fees to the Consultant as follows:
Consideration Fee
------------- ---
$ -0- to $ 500,000 Minimum fee of $25,000
$ 500,000 to $5,000,000 5% of Consideration
2
<PAGE>
$5,000,000 or more $250,000 plus 2-1/2% of the
Consideration in excess of
$5,000,000
Notwithstanding anything to the contrary, the Company shall have no
obligation to consummate any Transaction that is originated by the
Consultant.
Notwithstanding the provisions of Section 4 hereof, if the Company
identifies the other party and seeks investment banking services to such a
Transaction during the term of this Agreement, the Company shall engage the
Consultant to render investment advisory services and shall pay fees to the
Consultant to be mutually agreed upon.
For the purposes of this Agreement, "Consideration" shall mean the
total market value on the day of closing of stock, cash, assets and all
other property (real or personal) exchanged or received, directly or
indirectly by the Company or any of its security holders in connection with
any transaction, including without limitation any amounts paid by the
Company or any person or entity to holders of warrants, stock purchase
rights, straight or convertible securities of the Company or any affiliate
thereof, options or stock appreciation rights issued by the Company or any
affiliate thereof, whether or not vested, and to holders of any other
securities of any kind whatsoever of the Company, or pursuant to any
employment agreement, royalty, consulting agreement, covenant not to
compete, earnout or contingent payment right or similar arrangement,
agreement or understanding, whether oral or written. Any co-broker
retained by the Consultant shall be paid by the Consultant.
In the event the Consultant originates a line of credit with an
institutional lender, the Company and the Consultant will mutually agree on
a satisfactory fee and the terms of payment of such fee; provided, however,
that in the event the Company is introduced to a corporate partner in
connection with a merger, acquisition or financing and a credit line
develops directly as a result of the introduction, the appropriate fee
shall be the amount set forth in the schedule above. In the event the
Consultant introduces the Company to a joint venture partner or customer
and sales develop as a result of the introduction, the Company agrees to
pay a fee of ten percent (10%) of the pre-tax income (before any deduction
of interest charges or expenses) generated directly from this introduction
during the first two years following the date of the first sale.
Commission payments shall be paid on the 15th day of each month following
the receipt of customer's payment. In the event any adjustments are made
to the total sales after the commission has been paid, the Company shall be
entitled to an appropriate refund or credit against future payments due
under this Agreement.
5. Sales or Distributions of Securities: (a) Other than in
-------------------------------------
connection with the Consultant's exercise of its preferential right under
Section 5(t) of that certain Underwriting Agreement, dated ____________,
1996, between the Company and the Consultant, if the Consultant acts as an
underwriter or placement agent in the sale or distribution of
3
<PAGE>
securities by the Company, to the public or in a private transaction (an
"Offering") or directly or indirectly introduces a third party to the
Company which participates (a "Participating Third Party") in an Offering
by the Company, the Consultant shall receive, as compensation for services
rendered a cash payment equal to ten percent (10%) of the aggregate
Consideration received by the Company, a non-accountable expense allowance
equal to three percent (3%) of the aggregate Consideration received by the
Company and warrants to purchase an amount of securities of the Company
equal to ten percent (10%) of the total amount sold by the Company in such
Offering or, in the case of a Participating Third Party, a cash payment
equal to ten percent (10%) of the aggregate Consideration received by the
Company from the Participating Third Party, a non-accountable expense
allowance equal to three percent (3%) of the aggregate Consideration
received by the Company from the Participating Third Party and warrants to
purchase an amount of securities of the Company equal to ten percent (10%)
of the total amount of securities sold by the Company to or through the
efforts of the Participating Third Party in such Offering.
(b) Fees and expenses payable to the Consultant with regard to
fairness opinions and evaluations, will be determined by mutual agreement
at such time as the nature and terms of such financing are affirmed.
All fees to be paid pursuant to this Agreement, except as
otherwise specified, are due and payable to the Consultant in cash at the
closing or closings of any transaction specified in Section 4 hereof. In
the event that this Agreement shall not be renewed or if terminated for any
reason notwithstanding any such renewal or termination, the Consultant
shall be entitled to a full fee as provided under Sections 4 and 5 hereof,
for any transaction for which the discussions were initiated during the
term of this Agreement and which is consummated within a period of twelve
months after non-renewal or termination of this Agreement.
6. Compensation for Out-of-Pocket Expenses. The Consultant shall be
----------------------------------------
entitled to reimbursement by the Company of such reasonable, accountable
out-of-pocket expenses as the Consultant may incur in performing Financial
Services requested by the Company under this Agreement. Such reimbursement
shall be in addition to any fees otherwise earned by the Consultant
hereunder. Any expense in excess of $1,000 in any calendar month for which
the Consultant shall be entitled to reimbursement hereunder shall be
approved in advance by the Company provided, however, that ordinary and
necessary travel expenses of the Consultant need not be so approved.
7. Nonexclusivity of this Agreement. The Company expressly
---------------------------------
understands and agrees that the Consultant shall not be prevented or barred
from rendering services of the same nature as, or a similar nature to,
those described herein, or of any nature whatsoever, for or on behalf of
any person, firm, corporation or entity other than the Company. The
Consultant understands and agrees that the Company shall not be
4
<PAGE>
prevented or barred from retaining other persons or entities to provide
services of the same nature or similar nature as those described herein or
of any nature whatsoever.
8. Disclaimer of Responsibility for Acts of the Company. The
-----------------------------------------------------
obligations of the Consultant described in this Agreement consist solely of
the furnishing of information and advice to the Company. In no event shall
the Consultant be required by this Agreement to act as the agent of the
Company or otherwise to represent or make decisions for the Company. All
final decisions with respect to acts of the Company, its subsidiaries or
its affiliates, whether or not made pursuant to or in reliance on
information or advice furnished by the Consultant hereunder, shall be those
of the Company or such subsidiaries or affiliates and the Consultant shall
under no circumstances be liable for any expense incurred or loss suffered
by the Company as a consequence of such decisions. Since the Consultant
will be acting on behalf of the Company in connection with its engagement
hereunder, the Company and the Consultant have entered into a separate
indemnification agreement substantially in the form attached hereto as
Exhibit A and dated the date hereof, providing for the indemnification of
the Consultant by the Company. The Consultant has entered into this
Agreement in reliance on the indemnities set forth in such indemnification
agreement.
9. Termination. The Consultant may terminate this Agreement by
------------
giving notice to the Company, accompanied by the pro-rata share of the
payment described in Section 3 hereof, based on the number of months
remaining in the original term of this Agreement on the effective date of
the termination, without interest. In the event of termination pursuant to
this Section 9, neither party shall have any rights or obligations
hereunder after the date of such termination except that the obligation of
the Company to make any payment required with respect to Additional
Financial Services performed by the Consultant prior to such termination
shall continue in effect until such payment is made.
Any termination pursuant to this Section 9 shall be effective at the
close of business on the first day of the third month following the date of
receipt of notice thereof by the receiving party.
10. Confidentiality. The Consultant will not disclose to any other
----------------
person, firm, or corporation, nor use for its own benefit, during or after
the term of this Agreement, any trade secrets or other information
designated as confidential by the Company which is acquired by the
Consultant in the course of performing services hereunder. (A trade secret
is information not generally known to the trade which gives the Company an
advantage over its competitors. Trade secrets can include, by way of
example, products or services under development, production methods and
processes, sources of supply, customer lists and marketing plans.) Any
financial advice rendered by the Consultant pursuant to this Agreement may
not be disclosed publicly in any manner without the prior written approval
of the Consultant. Any information, which (i) at or prior to the time of
disclosure by the Company to the Consultant was generally available to the
public through no breach of this
5
<PAGE>
Agreement, (ii) was available to the public on a nonconfidential basis
prior to its disclosure by the Company to the Consultant or (iii) was made
available to the public from a third party provided that such party did not
obtain or disseminate such information in breach of any legal obligation of
the Consultant shall not be deemed confidential information of the Company
for purposes hereof.
11. Amendment. No amendment to this Agreement shall be valid unless
----------
such amendment is in writing and is signed by authorized representatives of
all the parties to this Agreement.
12. Waiver. Any of the terms and conditions of this Agreement may be
-------
waived at any time and from time to time in writing by the party entitled
to the benefit thereof, but a waiver in one instance shall not be deemed to
constitute a waiver in any other instance. A failure to enforce any
provision of this Agreement shall not operate as a waiver of the provision
or of any other provision hereof.
13. Severability. In the event that any provision of this Agreement
-------------
shall be held to be invalid, illegal or unenforceable in any circumstances,
the remaining provisions shall nevertheless remain in full force and effect
and shall be construed as if the unenforceable portion or portions were
deleted.
14. Governing Law. This Agreement shall be governed by and construed
--------------
and enforced in accordance with the laws of the State of New York.
15. Notices. All notices, requests, payments, instructions, claims or
--------
other communications hereunder shall be in writing and shall be deemed to
be given or made when delivered by first-class, registered or certified
mail to the following address or addresses or such other address or
addresses as the parties may designate in writing in accordance with this
Section:
If to the Company: 55 Broad Street
New York, New York ______
Attention: David Centner
If to the Consultant: Park Avenue Tower
65 East 55th Street
New York, New York 10022
Attention: Stephen A. Blum
16. Assignment. This Agreement shall be binding upon and inure to
-----------
the benefit of the parties and their respective successors and assigns;
provided, however, that this
6
<PAGE>
Agreement shall not be binding on or inure to the benefit of any successor
or assign of the Consultant where, as a result of such succession or
assignment, control of the entity which would otherwise succeed to the
rights and obligations of this Agreement is materially different from the
control of the entity having such rights and obligations prior to such
succession or assignment.
17. Execution in Counterparts. This Agreement may be executed by the
--------------------------
parties in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement.
DATED as of , 1996.
K2 DESIGN, INC.
By:
------------------------------------------
David Centner,
Chief Executive Officer
DONALD & CO. SECURITIES INC.
By:
-------------------------------------------
Stephen A. Blum
President
7
<PAGE>
EXHIBIT A
---------
__________, 1996
Donald & Co. Securities Inc.
Park Avenue Tower
65 East 55th Street
New York, New York 10022
Attention: Stephen A. Blum
Gentlemen:
In connection with our engagement of Donald & Co. Securities Inc. (the
"Consultant") as our financial advisor and investment banker, we hereby
agree to indemnify and hold the Consultant and its affiliates, and their
respective directors, officers, shareholders, agents and employees of the
Consultant (collectively, the "Indemnified Persons"), harmless from and
against any and all claims, actions, suits, proceedings (including those of
shareholders), damages, liabilities and expenses incurred by any of them
(including reasonable fees and expenses of counsel) which are (A) related
to or arise out of (i) any actions taken or omitted to be taken (including
any untrue statements made or any statements omitted to be made) by us, or
(ii) any actions taken or omitted to be taken by any Indemnified Person in
connection with the engagement of the Consultant hereunder, or (B)
otherwise related to or arising out of the Consultant's activities on our
behalf under the Consultant's engagement hereunder, and we shall reimburse
any Indemnified Person for all expenses (including the reasonable fees and
expenses of counsel) incurred by such Indemnified Person in connection with
investigating, preparing or defending any such claim, action, suit or
proceeding (collectively a "Claim"), whether or not in connection with
pending or threatened litigation in which any Indemnified Person is a
party. We will not, however, be responsible for any Claim which is finally
judicially determined to have resulted exclusively from the gross
negligence or willful misconduct of any person seeking indemnification
hereunder. We further agree that no Indemnified Person shall have any
liability to us for or in connection with the Consultant's engagement
except for any Claim incurred by us solely as a direct result of any
Indemnified Person's gross negligence or willful misconduct.
<PAGE>
We further agree that we will not, without prior written consent of
the Consultant, settle, compromise or consent to the entry of any judgment
in any pending or threatened Claim in respect of which indemnification may
be sought hereunder (whether or not any Indemnified Person is an actual or
potential party to such Claim), unless such settlement, compromise or
consent includes a legally binding, unconditional, and irrevocable release
of each Indemnified Person hereunder from any and all liability arising out
of such Claim.
Promptly upon receipt by an Indemnified Person of notice of any
complaint or the assertion or institution of any Claim with respect to
which indemnification is being sought hereunder, such Indemnified Person
shall notify us in writing of such complaint or of such assertion or
institution but failure to so notify us shall not relieve us from any
obligation we may have hereunder, unless and only to the extent such
failure results in the forfeiture by us of substantial rights and defenses,
and will not in any event relieve us from any other obligation or liability
we may have to any Indemnified Person otherwise than under this Agreement.
If we so elect or are requested by such Indemnified Person, we will assume
the defense of such Claim, including the employment of counsel reasonably
satisfactory to such Indemnified Person and payment of the reasonable fees
and expenses of such counsel. In the event, however, that such Indemnified
Person reasonably determines in its sole judgment that having common
counsel would present such counsel with a conflict of interest or such
Indemnified Person concludes that there may be legal defenses available to
it or other Indemnified Persons different from or in addition to those
available to us, then such Indemnified Person may employ its own separate
counsel to represent or defend it in any such Claim and we shall pay the
reasonable fees and expenses of such counsel. Notwithstanding anything
herein to the contrary, if we fail timely or diligently to defend, contest,
or otherwise protect against any Claim, the relevant Indemnified Party
shall have the right, but not the obligation, to defend, contest,
compromise, settle, assert crossclaims or counterclaims, or otherwise
protect against the same, and shall be fully indemnified by us therefor,
including without limitation, for the fees and expenses of its counsel and
all amounts paid as a result of such Claim or the compromise or settlement
thereof. In any Claim in which we assume the defense, the Indemnified
Person shall have the right to participate in such defense and to retain
its own counsel therefor at its own expense.
We agree that if any indemnity sought by an Indemnified Person
hereunder is held by a court to be unavailable for any reason, then
(whether or not the Consultant is the Indemnified Person) we and the
Consultant shall contribute to the Claim for which such indemnity is held
unavailable in such proportion as is appropriate to reflect the relative
benefits to us, on the one hand, and the Consultant on the other, in
connection with the Consultant's engagement hereunder, subject to the
limitation that in no event shall the amount of the Consultant's
contribution to such Claim exceed the amount of fees actually received by
the Consultant from us pursuant to the Consultant's engagement. We hereby
agree that the relative benefits to us, on the one hand, and the Consultant
on the other, with respect to the Consultant's engagement hereunder shall
be deemed to be in the same
2
<PAGE>
proportion as (a) the total value paid or proposed to be paid or received
by us or our stockholders as the case may be, pursuant to the transaction
(whether or not consummated) for which the Consultant is engaged to render
services bears to (b) the fee paid or proposed to be paid to the Consultant
in connection with such agreement.
Our indemnity, reimbursement and contribution obligations under this
Agreement shall be in addition to, and shall in no way limit or otherwise
adversely affect any rights that any indemnified Party may have at law or
at equity.
We hereby consent to personal jurisdiction and service of process and
venue in any court in which any claim for indemnity is brought by any
Indemnified Person.
It is understood that, in connection with Vantage's engagement,
Vantage may be engaged to act in one or more additional capacities and that
the terms of the original engagement or any such additional engagement may
be embodied in one or more separate written agreements. The provisions of
this Agreement shall apply to the original engagement, any such additional
engagement and any modification of the original engagement or such
additional engagement and shall remain in full force and effect following
the completion or termination of Vantage's engagement(s).
Very truly yours,
K2 DESIGN, INC.
By:
-------------------------------------------
David Center
Chief Executive Officer
Confirmed and Agreed to:
DONALD & CO. SECURITIES INC.
By:
----------------------------------------------
Stephen A. Blum
President
Date:
------------------------------
3
EXHIBIT 21.1
------------
LIST OF SUBSIDIARIES
--------------------
STATE OF NAME UNDER WHICH
NAME INCOROPRATION IT DOES BUSINESS
- ---- ------------- ----------------
K-2 Design, Inc. New York K2 Design
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Roseland, New Jersey
June 26, 1996
EXHIBIT 23.3
------------
June 26, 1996
Mr. David Centner
Chairman
K2 Design, Inc.
80 East 11th Street
Suite 619
New York, NY 1003
Dear Mr. Centner:
I understand that I will be named to serve as a director of K2 Design,
Inc. in its Registration Statement on Form SB-2 and in its Prospectus,
which is a part thereof, such directorship to be effective upon completion
of the Company's initial public offering. I hereby consent to be so named
as a director and will serve if elected.
Very truly yours,
/s/ JAMES A. FAVIA
------------------------
(signature)
James A. Favia
------------------------
(print name)
EXHIBIT 23.4
------------
June 26, 1996
Mr. David Centner
Chairman
K2 Design, Inc.
80 East 11th Street
Suite 619
New York, NY 1003
Dear Mr. Centner:
I understand that I will be named to serve as a director of K2 Design,
Inc. in its Registration Statement on Form SB-2 and in its Prospectus,
which is a part thereof, such directorship to be effective upon completion
of the Company's initial public offering. I hereby consent to be so named
as a director and will serve if elected.
Very truly yours,
/s/ STEVEN N. GOLDSTEIN
--------------------------
(signature)
Steven N. Goldstein
--------------------------
(print name)
