<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996
REGISTRATION NO. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INDEX STOCK PHOTOGRAPHY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7319 13-362-8873
- -------------------------------------------------------------------------------------------
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
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126 Fifth Avenue Bahar Gidwani
New York, New York 10011 Index Stock Photography, Inc.
(212) 929-4644 126 Fifth Avenue
(Address and telephone New York, New York 10011
number of principal executive offices) (212) 929-4644
(Name, address and telephone number
of agent for service)
------
Copies to:
Arthur M. Schneck, Esq. Paul Jacobs, Esq.
Joel W. Wagman, Esq. Fulbright & Jaworski L.L.P.
Schneck Weltman Hashmall & Mischel LLP 666 Fifth Avenue
1285 Avenue of the Americas New York, New York 10103
New York, New York 10019 (212) 318-3000
(212) 956-1500 (212) 752-5958 (fax)
(212) 956-3252 (fax)
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Approximate date 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. / /
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 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. /X/
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount To Be Offering Price Per Aggregate Offering Amount of
To Be Registered Registered Security(1) Price(1) Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
($.0001 par value) 1,150,000(2) $10 $11,500,000 $3,965.20
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(2) Includes 150,000 shares which may be purchased by the Underwriter to
cover over-allotments, if any. The Underwriter may at its discretion
permit up to 75,000 shares of the over-allotment to be sold for the
account of selling stockholders specified by the Company.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION C UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
FILED AS PART OF REGISTRATION STATEMENT
<TABLE>
<CAPTION>
Item Number
in Form S-1 Item Caption in Form S-1 Caption in Prospectus
--------------- ------------------------------------------------- -------------------------------------------------
<S> <C> <C>
1 Forepart of the Registration Statement and Outside Outside Cover Page
Front Cover Page of Prospectus
2 Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of Prospectus
of Prospectus
3 Summary Information, Risk Factors and Ratio of Prospectus Summary; Summary Financial Information;
Earnings to Fixed Charges Risk Factors
4 Use of Proceeds Use of Proceeds
5 Determination of Offering Price Front Page of Prospectus; Risk Factors; Underwriting
6 Dilution Dilution
7 Selling Security Holders Principal Stockholders
8 Plan of Distribution Outside Front and Outside Back Cover Pages of Prospectus;
Underwriting; Plan of Distribution
9 Description of Securities to be Registered Description of Capital Stock
10 Interests of Named Experts and Counsel Legal Matters; Experts
11 Information with Respect to Registrant Business; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Facilities; Legal Proceedings; Financial Statements;
Selected Financial Information; Management; Principal
Stockholders; Certain Transactions
12 Disclosure of Commission Position on Management-Limitation of Liability and Indemnification
Indemnification for Securities Act Liabilities Matters
</TABLE>
<PAGE>
==============================================================================
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
==============================================================================
SUBJECT TO COMPLETION, DATED JULY 3, 1996
PROSPECTUS
1,000,000 SHARES
INDEX STOCK PHOTOGRAPHY, INC.
Common Stock
------
The 1,000,000 shares of Common Stock (the "Common Stock") offered hereby
(the "Offering") are being sold by Index Stock Photography, Inc., a Delaware
corporation ("Index Stock" or the "Company"). Prior to this Offering, there
has been no public market for the Common Stock of the Company. The Company
has applied for quotation of the Common Stock on The Nasdaq SmallCap
Market(SM) ("Nasdaq") under the symbol "ISPI." Application has also been made
to list the Common Stock on the Boston Stock Exchange under the trading
symbol "ISP." It is currently anticipated that the initial public offering
price will be between $8 and $10 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=============================================================================
Underwriting Discounts Proceeds to
Price to Public and Commission(1) Company(2)(3)
- -----------------------------------------------------------------------------
Per share ... $ $ $
Total(3) .... $ $ $
=============================================================================
(1) Excludes the value of warrants to be issued to the representative of the
Underwriters (the "Representative"). Does not include a 2%
non-accountable expense allowance payable to the Representative, of which
$25,000 has been paid to date. The Company has also agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$655,000.
(3) The Company has granted the Underwriters a 45-day option to purchase up
to 150,000 additional shares of Common Stock solely to cover
over-allotments, if any. The Representative may in its discretion permit
up to 75,000 shares of the over-allotment option to be sold for the
account of stockholders specified by the Company (the "Selling
Stockholders"). The Company will not receive any proceeds from the sale
of shares sold for the account of the Selling Stockholders. If such
option is exercised in full and such shares are sold by the Selling
Stockholders, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders
would be $ , $ , $ and $ , respectively. If such option is
exercised in full and such shares are not sold by the Selling
Stockholders, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company would be $ , $ and $ ,
respectively. See "Underwriting."
<PAGE>
------
The shares of Common Stock offered hereby are being offered by the
Underwriters named herein, subject to prior sale and acceptance by the
Underwriters and subject to their right to reject any order in whole or in
part. It is expected that certificates for the shares of Common Stock will be
available for delivery on or about , 1996 at the offices of Kaufman
Bros., L.P., New York, New York.
------
KAUFMAN BROS., L.P.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
This Prospectus makes references to trademarks of other companies, which
marks are the property of such companies.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and notes thereto appearing elsewhere in
this Prospectus. Except as otherwise indicated, the information set forth in
this Prospectus assumes no exercise of the Underwriters' over-allotment
option. References to share amounts issued and outstanding prior to this
Offering have been adjusted for a .662-for-one reverse stock split effected
in May 1996 and assume conversion to Common Stock of all shares of preferred
stock outstanding prior to this Offering.
THE COMPANY
Index Stock Photography, Inc. ("Index Stock" or the "Company") is both a
leading still image provider to traditional users of stock photography and an
Internet content provider. The Company has developed a proprietary system for
image storage, retrieval and transmission (the "Telephoto System") that
allows its employees and customers to find, select and receive images
electronically, using either keyword- or category-based search techniques.
Index Stock licenses its library of more than one million images for fees
based upon the type and nature of their use. Since its inception, the Company
has licensed images to more than 50,000 customers in 35 countries worldwide.
These images are provided to commercial users of stock photography, such as
advertisers, graphic designers and publishers, as well as to emerging new
markets of multimedia producers, consumer users and desktop publishers in the
growing small office / home office ("SOHO") market. The Company distributes
images to professional users through two offices in the United States and 21
independent foreign agents and to the consumer and SOHO markets via on-line
networks, such as CompuServe, Prodigy, and the World Wide Web portion of the
Internet. Index Stock has also developed image selection and layout tools
that allow users to search for, select and manipulate electronic versions of
down-loaded images. The Company promotes its images using printed and CD-ROM
catalogs, direct sales, direct mail, print advertising and public
appearances.
Companies in the $500 million per year traditional stock photography
industry provide a cost-and time-efficient alternative to hiring a
professional photographer by providing film-based still images for commercial
use in print and video advertisements, and for packages, calendars, greeting
cards, magazines, books and newspapers. Rapid technological change, resulting
in widespread availability of powerful and inexpensive personal computers and
desktop publishing software, is contributing to the consolidation of the
stock photography industry. The Company has taken advantage of this trend by
acquiring selected assets of four agencies to establish and expand its base
of images and photographers. During April 1996, the Company began providing
selected customers a secure Internet link to the Telephoto System and
believes that direct access to its images via the Internet will continue to
be attractive to its professional customer base. Index Stock believes that
its Telephoto System gives it a strategic advantage over competitors in the
traditional stock photography market.
The Company's decision in 1991 to commit fully to digitize and automate
its library using electronic imaging and communication technology has also
allowed it to expand into the rapidly developing new multimedia, consumer and
SOHO markets through on-line services and the Internet. Index Stock believes
that these new markets represent its largest opportunity as consumer on-line
services and Internet use grow, coupled with the popularity of desktop
publishing. Since November 1994, the Company has licensed images directly to
consumers through its on-line service, Photos to Go(TR) (available both on
CompuServe and the World Wide Web), for use in presentations, school reports,
screen savers and as illustrations on both personal and corporate "websites."
Consumers can also access and license images through Sprint's TPX system,
through Knight-Ridder's PressLink system, and through Infonautics' Electric
Library service (available currently on Prodigy, the Microsoft Network, and
the World Wide Web). The Company has also published sets of images on CD-ROM
discs that are distributed by Corel Corporation and PhotoDisc. Unlike many
Internet content providers, Index Stock's consumer market business will not
be dependent upon its ability to generate revenues from the sale of
advertising.
3
<PAGE>
Index Stock's Telephoto System allows it to scan, categorize, store and
retrieve thousands of still images in a more cost-effective, timely, and
convenient manner than has previously been possible. The Company's library
contains images contributed by over 400 independent photographers and graphic
artists who are affiliated with the Company, and by 21 other independent
still image suppliers, who in turn represent many additional artists. To
date, it has stored information on more than 150,000 images in the Telephoto
System. With development assistance from companies, including Microsoft,
Apple Computer, Netscape, Adobe and Accusoft, who provide technical support,
pre-release versions of software, and code libraries, the Company has created
a system that can search for and retrieve more than 60 images per minute over
a 28.8 kbps modem.
The Company's objective is to be the leading provider of still images to
both traditional advertising and publishing users and to new consumer and
SOHO users. The Company's strategy includes the following key elements: (i)
maintain leading edge technology; (ii) develop new multimedia, consumer and
SOHO markets; (iii) expand international presence; (iv) expand the Company's
image collection by continuing to add photographers, acquire additional
collections and affiliate with other sources of still images; and (v) develop
and introduce new products and services, including delivery of content other
than still images.
Index Stock was incorporated in Delaware in April 1991. Its principal
executive offices are located at 126 Fifth Avenue, New York, New York 10011
and its telephone number is (212) 929-4644. The Company's Internet mail
address is infoindexstock.com. Its address on the World Wide Web is
http://www.indexstock.com.
THE OFFERING
Securities offered ................ 1,000,000 shares
Securities outstanding prior to
the Offering(1) .................. 1,366,523 shares
Securities to be outstanding
after the Offering(1) ............ 2,366,523 shares
Use of Proceeds ................... To repay certain indebtedness and for
general corporate purposes, including
working capital
- ------
(1) Does not include: (i) 131,076 shares underlying outstanding options to
purchase shares under the Company's 1992 Non-qualified Stock Option Plan
at exercise prices ranging from $.88 to $4.53 per share; (ii) 132,400
shares underlying warrants exercisable at $6.04 per share issued by the
Company in a private financing in April 1996; (iii) 9,930 shares
underlying a warrant exercisable at $4.98 per share issued by the Company
in a private financing in January 1996; and (iv) 100,000 shares issuable
upon the exercise of the Representative's Warrants.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six months
Year ended October 31 ended April 30
----------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ........................... $ 1,386 $ 1,732 $ 2,215 $ 993 $1,242
Commission expense ................. (410) (512) (705) (291) (419)
Selling, general and administrative
expenses .......................... (1,066) (1,071) (1,488) (743) (897)
Research and development expenses .. (255) (388) (424) (198) (260)
--------- --------- ---------- -------- --------
Income (loss) from operations ...... (345) (239) (402) (239) (334)
Net income (loss) .................. (358) (255) (421) (245) (357)
Accretion of Series A and Series B
Preferred Stock ................... (392) (510) (666) (333) (372)
Net income (loss) attributable to
common stockholders(1) ............ $ (750) $ (765) $(1,087) $ (578) $ (729)
========= ========= ========== ======== ========
Net income (loss) per share
attributable to common
stockholders(1) .................... $ (0.54) $ (0.52) $ (0.72) $ (.39) $ (.47)
========= ========= ========== ======== ========
Weighted average number of shares used
in calculation of income (loss) per
share(2) .......................... 1,392 1,478 1,520 1,484 1,550
</TABLE>
April 30, 1996
------------------------------------
Actual As Adjusted(3)
-------- --------------
Balance Sheet Data:
Working capital ........... $(267) $7,133
Total assets .............. 798 7,698
Long-term liabilities ..... 63 63
Total stockholders' equity . (23) 7,377
- ------
(1) Net income (loss) attributable to common stockholders represents net
income (loss) after deducting the accretion of Series A and Series B
Preferred Stock. Although the Series A and Series B Preferred Stock will
be automatically converted to Common Stock effective with the closing of
this Offering, the carrying values of the Preferred Stock have been
increased by periodic accretions, based on the interest method, of the
difference between the fair value at the dates of issuance and the
redemption dates, at which time both amounts would be equivalent.
(2) The weighted average number of shares used in calculation of net income
(loss) per share includes all shares of Common Stock outstanding during
each year and 441,334 shares of Common Stock attributable to the
automatic conversion of the Series A and Series B Preferred Stock to
Common Stock effective with the closing of this Offering. The 441,334
shares are presumed to be outstanding since the issue date of the Series
A and Series B Preferred Stock. In addition, Common Stock and common
stock equivalents issued by the Company at prices below the initial
public offering price during the twelve month period prior to this
Offering have been included in the calculation as if they were
outstanding for all periods presented.
(3) Adjusted to give effect to (a) the sale of 1,000,000 shares of Common
Stock hereby at an assumed initial public offering price of $9 per share
(the midpoint of the range of the estimated initial public offering
price) and the application of the net proceeds therefrom, after deducting
the estimated underwriting discounts and commissions and offering
expenses payable by the Company and (b) the automatic conversion of the
Company's outstanding Preferred Stock effective with the closing of this
Offering. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors, prior to making an investment decision, should
consider carefully, in addition to the other information contained in this
Prospectus (including the financial statements and notes thereto), the
following risk factors. This Prospectus contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially. Factors that could
cause or contribute to such differences include, but are not limited to,
those discussed below, as well as those discussed elsewhere in the
Prospectus.
Limited Operating History; Operating Losses. The Company was incorporated
in April 1991, and accordingly has only a limited operating history upon
which an evaluation of the Company's business and prospects can be based. As
of April 30, 1996, the Company had an accumulated deficit of $3,281,660. The
Company incurred net losses of $420,948 and $255,081 for the fiscal years
ended October 31, 1995 and October 31, 1994, respectively, and incurred net
losses of $356,519 and $245,452 for the six months ended April 30, 1996 and
April 30, 1995, respectively. Significant portions of the Company's losses
were attributed to costs associated with developing computer software to
automate the finding, storing and distributing of images. The Company's
losses are expected to continue through at least the end of fiscal 1997, and
there can be no assurance that the Company will not continue to incur losses
thereafter. See "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Potential Fluctuations in Operating Results. The Company has experienced
and expects to experience fluctuations in its quarterly results. The
Company's revenues are affected by a number of factors, including: (i) the
timing of introduction of new printed and CD-ROM catalogs, promotional
mailings and advertisements; (ii) the timing of similar promotional activity
by major competitors; (iii) the payment of large license fees; (iv) seasonal
and holiday-related changes in activity in the Company's consumer on-line
services; and (v) foreign exchange rate fluctuations. The Company's operating
results also could fluctuate significantly from period to period in the
future depending upon changes in pricing, changes in customer budgets and the
volume and timing of orders received during the quarter, which are difficult
to forecast. As a result of the foregoing and other factors, the Company may
experience material fluctuations in revenues and operating results on a
quarterly or annual basis. Therefore, the Company believes that period to
period comparisons of its revenues and operating results are not necessarily
meaningful and should not be relied upon as indicators of future performance.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Inability to Replace Still Images. The Company has duplicates of
approximately 20,000 of its highest- quality and frequently-licensed still
images. Most of the duplicates are located in Index Stock's New York office.
The remaining duplicates are in its Los Angeles office and with the Company's
foreign agents. These still images are positive transparencies and cannot be
further duplicated satisfactorily under current technology. They can be
damaged by careless handling. In addition, heat, smoke and water in the event
of a fire could irreparably damage these still images. Insurance coverage
under such circumstances may be insufficient to cover such losses and the
injury that could result to the Company's business. Accordingly, damage to a
substantial number of the Company's images could have a material adverse
affect upon the Company's business.
Absence of Ownership Rights. The Company is dependent upon having a broad
range and expanding supply of images. Index Stock does not own any of the
images that it licenses to its customers and is dependent upon sources of
images not within its direct control. The Company enters into agreements with
photographers and agencies to supply it with images. The number of
photographers and agencies providing images to the Company has increased from
year to year since the Company's inception, although there can be no
assurance that this pattern will continue or that the Company will continue
to be able to source high-quality images upon terms and conditions favorable
to the Company or at all. See "Business--Marketing" and "--Proprietary
Rights."
Risk of Nonpayment. The Company's images are sent to customers and foreign
affiliates on an approval basis. Index Stock's business may be adversely
affected if a substantial number of its customers utilize images without
making the appropriate payment based upon the intended nature and frequency
of use.
6
<PAGE>
Market Acceptance of Image Subject Matter. Index Stock's image library
contains still images considered by the Company to be suitable for
presentations, advertising and concept uses, packaging, book covers, magazine
and newspaper articles, calendars and greeting cards. There can be no
assurance that user tastes will not change or that the Company will adapt
timely in obtaining or be able to obtain images responsive to changes in user
preferences. See "Business--Marketing."
Technology Development and Change. The Company's success will depend, in
part, upon its ability to continue to deliver its products directly to its
customers using various electronic storage and transmission technologies. It
is possible that new technologies could require the Company to change its
operating systems in ways it has not anticipated. Each time technology
changes, new software must be developed. These changes could place unexpected
financial burdens on the Company and its business and prospects. Although the
Company provides access to its services across multiple delivery channels,
including commercial on-line services, the success of the Company's products
and services depends on, among other things, the continual expansion and
popularity of the Internet and its network infrastructure, of which no
assurance can be given.
Uncertainty of New Markets. The Company's revenues at present are derived
principally from license fees paid for the commercial use of images licensed
in the advertising and design markets--the traditional markets of the stock
photography industry. While the consumer and SOHO markets are believed by the
Company to represent substantial growth opportunities, consumer acceptance of
purchasing goods and services on-line is uncertain and the Company has no
independent marketing or feasibility studies on whether the Company is likely
to be successful in developing these markets. The Company has limited
experience in the consumer and SOHO markets and no assurance can be given
that the Company will be able to adapt to changing conditions in these
markets. A significant portion of the proceeds from this Offering will be
used for product development and sales and marketing initiatives for the
consumer and SOHO markets. There can be no assurance that the Company will be
successful in penetrating these markets or maintaining any market share it
may obtain. See "Business--Industry Overview" and "--Marketing."
Competition. The markets in which the Company operates are competitive.
There are several hundred sources of still images in the United States and in
foreign countries. Certain competitors, including divisions or subsidiaries
of large companies, have greater financial and marketing resources than the
Company. There can be no assurance that the Company will be able to compete
successfully in the future against existing or potential competitors or that
operating results will not be adversely affected by price competition from
the Company's larger competitors. See "Business--Competition."
Dependence Upon Intellectual Property. The Company's success is dependent
to a significant degree on its proprietary technology. The Company relies on
a combination of trade secrets and non-disclosure agreements with its
employees to establish and protect its proprietary rights. The Company does
not have any patents on the Telephoto System for image storage, selection and
retrieval. There can be no assurance that steps taken by the Company to
protect its intellectual property will be adequate to prevent
misappropriation. Further, there can be no assurance that others will not
independently develop technologies that are similar or superior to the
Company's technology. See "Business--Proprietary Rights."
Reliance Upon Distributors. A substantial portion of the Company's
revenues are derived from fees generated by foreign agents and parties with
whom the Company has strategic alliances that cover CD-ROM and on-line
marketing. There can be no assurance that these contract parties will
continue to perform satisfactorily or continue these agreements with the
Company in the future or that the terms available will not become more
burdensome to the Company. These contract parties generally are not subject
to any minimum purchase requirements and can discontinue marketing the
Company's products at any time upon proper notice. Accordingly, the Company
must compete for the focus and sales efforts of these contract parties.
Dependence on Third Party Software Vendors. The Company relies upon
software licensed from third parties including Microsoft, Apple Computer,
Adobe and Accusoft. The Company uses this software pursuant to standard
license agreements that limit or eliminate liability of the software supplier
in the event of a failure of product performance. These vendors also provide
the Company with development assistance, such as technical
7
<PAGE>
support, pre-release versions of software, and code libraries. Their
assistance could be discontinued at any time. Development of the Company's
image library without the product and technical support of these vendors
would likely delay continuing product development and materially adversely
affect operations.
Risk of System Failure and Security Risks. An increasing portion of the
Company's revenues and growth is expected to come from on-line licensing of
images. These on-line licensing systems will need to operate continuously and
reliably if the Company is to maintain its growth and maintain good relations
with its customers. Accordingly, any interruption in service could have a
material adverse effect on the Company. System failures could arise from a
break in the Company's connection to the Internet, power failures on its
premises, software or hardware failure in key components of the image
management or delivery system, or a failure in the systems of one or more
other outside services. While the Company has taken steps to minimize the
long-term effects of system failures, their occurrence could still have a
material adverse effect on the Company's business, results of operation, and
financial condition.
Despite the implementation of network security measures by the Company
such as limiting physical and network access to its hardware and software
systems, the Company's Internet infrastructure is vulnerable to computer
viruses, break-ins and similar disruptions caused by its customers or other
Internet users. Such problems caused by third parties could lead to
interruption, delays, or cessation in service to the Company's consumer and
SOHO users. Until comprehensive security technologies are developed, the
security and privacy concerns of existing and potential customers may inhibit
the growth of the Company's customer base and revenues.
Dependence on Key Personnel; Need to Hire Additional Qualified Personnel.
The Company is highly dependent on the technical and management skills of its
key employees, many of whom would be difficult to replace. The loss of the
services of any key personnel, including Mr. Bahar Gidwani, the Company's
Chairperson and Chief Executive Officer, could have a material adverse effect
upon the Company. Index Stock has entered into an employment agreement with
Mr. Gidwani. Prior to the completion of this Offering, the Company plans to
obtain key-person life insurance of $2,000,000 on Mr. Gidwani. Index Stock's
future success will also depend upon its ability to attract and retain
qualified management and technical personnel to support its future growth.
Competition for personnel is intense and there can be no assurance that the
Company will be successful in attracting or retaining qualified personnel.
The failure to attract and/or retain such persons could materially adversely
affect the Company's business, results of operation and financial condition.
See "Management."
Control by Current Stockholder, Officer and Director. Bahar Gidwani will
beneficially own immediately after this Offering approximately 32% of the
outstanding Common Stock of the Company (31% assuming exercise of the
Underwriters' over-allotment option). This ownership concentration may
provide him with effective control of the outcome of all matters submitted to
the stockholders for approval, including the election of directors of the
Company. As a result, Mr. Gidwani would be able to control the Company's
affairs and management. See "--Ability to Issue Preferred Stock;
Anti-Takeover Effects of Delaware Law" and "Principal Stockholders."
Broad Management Discretion in the Use of Proceeds. A large portion of the
proceeds of this Offering has been allocated to working capital on a basis
that is subject to very broad discretion on the part of management. The
Company's management will have the discretion to allocate a large percentage
of the proceeds to uses which the stockholders may not deem advisable. There
can be no assurance that the use of proceeds can or will yield a return. See
"Use of Proceeds."
No Prior Public Market; Determination of Offering Price; Share Price
Volatility. There has been no public market for the Company's Common Stock
prior to this Offering and there can be no assurance that an active trading
market in the Common Stock will develop or be sustained after this Offering.
While the Company's Common Stock is expected to be eligible for initial
listing on the Nasdaq SmallCap Market(SM) immediately upon the closing of
this Offering, there can be no assurance that an active trading market will
develop or be sustained or that the market price of the Common Stock will not
decline below the initial public offering price. The initial public offering
price will be determined through negotiations between the Company and the
Representative and may not be indicative of the market price for the Common
Stock following this Offering. In addition, factors like announcements by the
Company, variations in its quarterly financial results, or failure to meet
securi-
8
<PAGE>
ties analysts' expectations, among other things, could cause the market price
of the Common Stock to fluctuate significantly. Further, in recent years the
stock market in general and the market for shares of small capitalization
stocks in particular have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of the affected companies.
Such fluctuations could adversely affect the market price of the Common
Stock. See "Underwriting."
Ability to Issue Preferred Stock; Anti-Takeover Effects of Delaware
Law. The Company's Board of Directors has authority to issue up to 2,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges thereof, including voting rights, without any further vote or
action by the Company's stockholders. The voting and other rights of the
holders of Common Stock 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. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of delaying, deferring or preventing a change
in control of the Company. The Company has no current plans to issue any
shares of Preferred Stock. In addition, the Delaware General Corporation Law
contains provisions that may have the effect of delaying, deferring or
preventing a non-negotiated merger or other business combination involving
the Company. These provisions are intended to encourage any person interested
in acquiring the Company to negotiate with and obtain the approval of the
Board of Directors in connection with the transaction. However, certain of
these provisions may discourage a future acquisition of the Company in which
stockholders might receive an attractive value for their shares or that a
substantial number or even a majority of the stockholders might believe to be
in the best interest of stockholders. As a result, stockholders who desire to
participate in such a transaction may not have the opportunity to do so.
These provisions could also discourage bids for the shares at a premium, as
well as serve to create a depressive effect on the market price of the
shares. See "Description of Securities."
Shares Eligible for Future Sale. Immediately after completion of this
Offering, the Company will have 2,366,523 shares of Common Stock outstanding,
of which the 1,000,000 shares offered hereby will be eligible for sale
without regard to volume or other limitations pursuant to Rule 144 under the
Securities Act of 1933 (the "Securities Act"), unless purchased by
"affiliates" (as defined under Rule 144), which shares would be subject to
resale limitations of Rule 144. Sale of all of the remaining shares
(1,366,523) is limited by restrictions under the Securities Act and lock-up
agreements under which the holders of such shares have agreed not to sell or
otherwise dispose of any of their shares for a period of 12 months after the
date of this Prospectus, without the prior written consent of the
Representative, which may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to the lock-up
agreement. See "Underwriting." Sales of substantial amounts of Common Stock
in the public market, or the perception that such sales may occur, could
adversely affect the prevailing market price of the Common Stock and the
ability of the Company to raise capital through a public offering of its
equity securities. Following the expiration of the 12-month lock-up period,
1,268,547 shares of Common Stock will be eligible for sale in the public
market without registration, subject to certain volume and other limitations,
pursuant to Rule 144 under the Securities Act. Of these shares, 249,580
shares may be sold without regard to such limitations pursuant to Rule
144(k). In January 1998, April 1998 and May 1998, respectively, 19,860,
71,496 and 6,620 shares of Common Stock will be eligible for sale in the
public market under Rule 144. Subject to the provisions of the lock-up
agreements, all shares of Common Stock outstanding on the date of this
Prospectus will be eligible for sale to certain qualified institutional
buyers in accordance with Rule 144A under the Securities Act. Additional
shares, including shares issuable upon exercise of options, will also become
available for sale in the public market from time to time in the future.
Certain of the Company's stockholders have the right to cause the Company to
include their shares in future registrations of securities effected by the
Company under the Securities Act. An aggregate of 545,126 shares of Common
Stock presently outstanding or issuable upon exercise of an outstanding
warrant are subject to such registration rights. If the exercise of these
piggy-back registration rights cause a large number of shares to be
registered and sold in the public market, these sales may have an adverse
effect on the market price of the Common Stock. If the Company is required to
include these shares in a Company-initiated registration statement, this may
have an adverse effect on the Company's ability to raise needed capital. In
addition, 132,400 shares of Common Stock underlying outstanding warrants are
subject to a separate registration statement filed on or about the same date
as the registration statement of which this Prospectus is a part was filed,
although the holders of such warrants
9
<PAGE>
have agreed not to sell or otherwise offer such shares publicly for a
12-month period following the date of this Prospectus, subject to the right
of the Underwriters to release them, in whole or in part, from such
restriction. See "Principal Stockholders," "Shares Eligible for Future Sale,"
and "Description of Capital Stock--Registration Rights."
Immediate and Substantial Dilution. Purchasers of shares of Common Stock
in this Offering will experience immediate and substantial dilution in the
net tangible book value per share. See "Dilution."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $9 per share (the midpoint of the range of the estimated
initial public offering price) are estimated to be approximately $7,400,000
($8,608,250 if the Underwriters' over-allotment option is exercised in full),
after deducting estimated underwriting discounts and commissions and offering
expenses. The Company plans to use $500,000 to repay short term indebtedness
incurred during the second quarter of fiscal 1996 from certain individuals
including principal stockholders of the Company, none of whom is an officer
or director of the Company. A portion of the proceeds from this indebtedness
was used to repay certain cash advances made to the Company by its Chief
Executive Officer. No interest was charged or accrued with respect to such
advances. See "Certain Transactions." Approximately $3,000,000 will be spent
on direct mail, promotions and sales expenses associated with the Company's
continued expansion into the multimedia, consumer and SOHO markets and the
remaining net proceeds will be used for working capital and general corporate
purposes. The Company intends to invest the net proceeds in short-term,
investment-grade, interest-bearing instruments, pending use of the proceeds.
The Company believes that based upon its present business plan, the net
proceeds from this Offering will be sufficient to meet its currently
anticipated working capital and capital expenditure requirements for at least
the next 12 months. See "Risks Factors--Broad Management Discretion in Use
of Proceeds."
11
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock
and does not expect to pay dividends for the foreseeable future. The Company
currently intends to retain its earnings, if any, for use in its business.
Any future declaration of dividends will be subject to the discretion of the
Board of Directors of the Company and subject to restrictions that may be
imposed by any prospective lender to the Company.
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the
Company at April 30, 1996; (ii) the capitalization of the Company on a pro
forma basis to give effect to automatic conversion of the Company's
outstanding shares of Preferred Stock effective with the closing of this
Offering; (iii) the capitalization of the Company on a pro forma basis as
adjusted, to reflect the sale by the Company of the 1,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of $9
per share (the midpoint of the range of the estimated initial public offering
price), after deducting estimated underwriting discounts and commissions and
offering expenses, and the anticipated application of the net proceeds of
this Offering. See "Use of Proceeds." This table should be read in
conjunction with the Financial Statements and the notes thereto appearing
elsewhere in the Prospectus.
<TABLE>
<CAPTION>
April 30, 1996
----------------------------------------------
Pro forma
Actual Pro forma As Adjusted
------------- ------------- -------------
<S> <C> <C> <C>
Loan payable-bank (long-term portion) ................ $ 62,700 $ 62,700 $ 62,700
Notes Payable ........................................ 500,000 500,000 --
Stockholders' equity(1):
Preferred Stock, $.01 par value; 2,000,000 shares
authorized; 441,333 issued and outstanding; none
issued pro forma and pro forma as adjusted ...... 3,258,659 -- --
Common Stock, $.0001 par value; 10,000,000 shares
authorized; 918,570 shares issued and outstanding
(actual); 1,359,903 shares issued and outstanding
(pro forma); 2,359,903 shares issued and
outstanding (pro forma as adjusted) ............. 92 136 236
Additional paid-in capital ......................... -- 3,258,615 10,658,515
Accumulated deficit ................................ (3,281,660) (3,281,660) (3,281,660)
------------- ------------- -------------
Total stockholders' equity .................... (22,909) (22,909) 7,377,091
------------- ------------- -------------
Total capitalization .......................... $ 539,791 $ 539,791 $ 7,439,791
------------- ------------- -------------
</TABLE>
- ------
(1) Does not include: (i) 131,076 shares underlying outstanding options to
purchase shares under the Company's 1992 Non-qualified Stock Option Plan;
(ii) 132,400 shares of Common Stock underlying warrants issued by the
Company in a private financing in April 1996; (iii) 9,930 shares
underlying a warrant issued by the Company in a private financing in
January 1996; and (iv) 100,000 shares issuable upon exercise of the
Representative's Warrants.
12
<PAGE>
DILUTION
At April 30, 1996, the net tangible book value of the Company was
$(56,700), or approximately $(.04) per share. The net tangible book value per
share represents the amount of total assets (excluding intangible assets)
less total liabilities, divided by the total number of shares of Common Stock
outstanding, including shares of Preferred Stock automatically converted to
Common Stock upon completion of this Offering.
After giving effect to (i) the receipt of $7,400,000 of estimated net
proceeds from the sale by the Company of 1,000,000 shares of Common Stock in
this Offering at an assumed initial public offering price of $9 per share
(the midpoint of the range of the estimated initial public offering price)
and (ii) the use of such net proceeds as described under "Use of Proceeds,"
the net tangible book value at April 30, 1996 would have been $6,843,300 or
$2.90 per share of Common Stock. This represents an immediate increase in net
tangible book value of $2.94 per share of Common Stock to existing
stockholders and an immediate dilution to new investors of $6.10 per share of
Common Stock. The following table illustrates such dilution:
Assumed initial public offering price per share ..... $9.00
Net tangible book value per share before this
Offering............................................ (.04)
Increase per share attributable to new investors ... 2.94
------- -------
Net tangible book value per share after this Offering . 2.90
-------
Dilution per share to new investors .................. $6.10
=======
The following table sets forth at April 30, 1996, the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing holders of Common Stock and by
new investors purchasing shares of Common Stock sold by the Company in this
Offering, assuming the sale of 1,000,000 shares of Common Stock by the
Company at an assumed initial public offering price of $9 per share (the
midpoint of the range of the estimated initial public offering price):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
------------------------ -------------------------- ---------------
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders .. 1,359,903 57.6 $ 1,834,662 16.9 $1.35
New investors ......... 1,000,000 42.4 $ 9,000,000 83.1 $9.00
----------- --------- ------------- --------- ---------------
TOTAL. ............... 2,359,903 100.0% $10,834,662 100.0%
=========== ========= ============= =========
</TABLE>
The above information assumes no exercise of the Representative's Warrants
and no exercises of any outstanding options or warrants to purchase shares of
the Company's Common Stock. As of April 30, 1996, there were outstanding
131,076 options to purchase shares of Common Stock at exercise prices ranging
from $.88 to $4.53 per share and 142,330 warrants to purchase shares of
Common Stock at exercise prices ranging from $4.98 to $6.04 per share. The
issuance of shares of Common Stock upon the exercise of such options or
warrants may result in further dilution to new investors.
13
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information presented below for each of the five
years ending with the period ended October 31, 1995 has been derived from the
Company's financial statements, which have been audited by Ernst & Young LLP,
independent auditors. The selected financial information presented below for
the six months ended April 30, 1995 and 1996 has been derived from unaudited
financial statements of the Company which included, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the quarterly selected financial information. The
results for any six month period are not necessarily indicative of the
results of operations for a full year or any other six month period. The
selected financial information should be read in conjunction with the
Financial Statements and the notes thereto and other financial information
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six months
Year ended October 31, ended April 30,
----------------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------------------- -------- -------- -------- --------- -------- --------
Inception (in thousands except per share data)
(April 23, 1991
to October 31,
1991)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net Revenues ............... $ -- $1,269 $1,386 $1,732 $ 2,215 $ 993 $1,242
Operating Expenses:
Commissions .............. -- 443 410 512 705 291 419
Selling, general and
administrative ........ 35 1,045 1,066 1,071 1,488 743 897
Research and development . 232 255 388 424 198 260
Income (loss) from operations (35) (451) (345) (239) (402) (239) (334)
Net income (loss) .......... (29) (438) (358) (255) (421) (245) (357)
Accretion of Series A and Series
B Preferred Stock ........ -- (301) (392) (510) (666) (333) (372)
Net income (loss) attributable
to common stockholders(1) . (29) (739) (750) (765) (1,087) (578) (729)
Net income (loss) attributable
to common stockholders per
share(1) ................. $(.03) $ (.55) $ (.54) $ (.52) $ (.72) $ (.39) $ (.47)
Weighted average number of
shares outstanding(2) .... 837 1,335 1,392 1,478 1,520 1,484 1,550
</TABLE>
April 30, 1996
-------------------------------------
Actual As Adjusted(3)
-------- --------------
Balance Sheet Data:
Cash ..................... $ -- $6,900
Working capital .......... (267) 7,133
Total assets ............. 798 7,698
Total stockholders' equity . (23) 7,377
- ------
(1) Net income (loss) attributable to common shareholders represents net
income (loss) attributable to common stockholders after deducting the
accretion of Series A and Series B Preferred Stock. Although the Series A
and Series B Preferred Stock will be automatically converted to Common
Stock effective with the closing of this Offering, the carrying values of
the Preferred Stock have been increased by periodic accretions, based on
the interest method, of the difference between the fair value at the
dates of issuance and the redemption dates, at which time both amounts
would be equivalent.
(2) The weighted average number of shares used in calculation of net income
(loss) per share includes all shares of Common Stock outstanding during
each year and 441,334 shares of Common Stock attributable to the
automatic conversion of the Series A and Series B Preferred Stock to
Common Stock effective with the closing of this Offering. The 441,334
shares are presumed to be outstanding since the issue date of the Series
A and Series B Preferred Stock. In addition, Common Stock and common
stock equivalents issued by the Company at prices below the initial
public offering price during the twelve month period prior to this
Offering have been included in the calculation as if they were
outstanding for all periods presented.
(3) Adjusted to give effect to (a) the sale of 1,000,000 shares of Common
Stock hereby at an assumed initial public offering price of $9 per share
(the midpoint of the range of the estimated initial public offering
price) and the application of the net proceeds therefrom, after deducting
the estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company and (b) the automatic conversion
of the Company's outstanding Preferred Stock effective with the closing
of this Offering. See "Use of Proceeds" and "Capitalization."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Financial Statements, including the notes thereto, included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."
OVERVIEW
Index Stock licenses high-quality photographs for use by advertisers,
graphic designers, publishers and multimedia producers. The Company
established operations in 1991 with the acquisition of selected business
assets of a major New York-based stock photography agency, Index Stock
International, Inc. Since then, the Company acquired selected assets from
three other stock photography agencies, Telephoto, Inc. in 1992, ProFiles
West in 1995 and Southern Stock in 1996. These acquisitions helped expand the
Company's image library from 200,000 to more than one million images and its
list of image providers from 92 to over 400.
Since beginning operation in 1991, Index Stock (i) designed and built its
Telephoto System, a proprietary hardware and software system for scanning,
storing, keywording and retrieving images; (ii) loaded information on more
than 150,000 images into this system; and (iii) acquired assets from and
combined the operations of four established stock photo agencies. Through the
end of fiscal 1995, the Company invested approximately $1.3 million in
developing versions of the Telephoto System and $0.4 million in loading
information on images. In connection with its asset purchases, Index Stock
made payments of approximately $567,000, including $362,000 for consulting
and non-competition agreements, and issued approximately 143,500 shares of
the Company's common stock. The first two acquisitions provided the Company
with a broad base of images and photographers and the core of its foreign
agent network. The two more recent asset purchases added more specialized
collections of images. ProFiles West provided images on the American West,
outdoor sports, Western travel and nature and Southern Stock provided images
on the Southeast, water sports, marine life, the Caribbean, Southeastern
travel and nature. Typical fees for commercial users average $475 per image.
Consumer and SOHO market customers are charged a fee varying from about $5 to
$100 per image.
Costs and expenses incurred in connection with the development of the
Company's proprietary hardware and software system were expensed as incurred
in accordance with generally accepted accounting principles. Research and
development expenditures planned for the year ending October 31, 1996 are
related to testing and evaluation of the Telephoto System and alternative
applications of this system. Most of these costs and expenses will be
expensed as incurred.
Index Stock recognizes revenue upon the acceptance by its customers of the
license terms and notification of their intention to use the licensed image.
The principal cost of generating revenues is royalties paid by the Company to
photographers and other image providers. Commissions payable vary between 25%
to 70% of the net revenues received by the Company depending upon the nature
and use of the image. Factors affecting commissions paid include the identity
of specific photographers and sales mix between commercial uses and consumer
and SOHO uses. The Company pays lower commissions on most of the images
included in its CD-Rom and print catalogs because the Company bears the
promotional expense associated with catalog production and distribution.
Higher commissions are paid for non-catalog based images and consumer and
SOHO market uses.
The Company began digitizing and automating its image library in 1992 and
has been using its on-line retrieval system since 1994. In July 1995, Index
Stock completed an extensive site on the World Wide Web portion of the
Internet to market images directly to consumer and SOHO customers.
Historically, revenues derived from these groups have not been material.
However, with the growing number of consumer and SOHO users accessing the
Internet, management believes that this market segment provides the Company
with opportunities for growth.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in the Company's statement of operations:
<TABLE>
<CAPTION>
Six months ended
Year Ended October 31, April 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue .................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Commission expense ....................... 29.6 29.6 31.8 29.3 33.7
Selling, general and administrative
expenses................................. 76.9 61.8 67.2 74.8 72.2
Research and development expenses ........ 18.4 22.4 19.1 20.0 21.0
</TABLE>
SIX MONTHS ENDED APRIL 30, 1996 COMPARED WITH SIX MONTHS ENDED APRIL 30, 1995
REVENUES
Revenues were $1,242,000 for the first half of fiscal 1996 compared to
$993,000 for the first half of fiscal 1995, an increase of approximately 25%.
This increase was primarily due to an increase in professional customer
sales. In addition, Index Stock's revenues also increased due to an increase
in on-line consumer sales, which the Company believes resulted from the
recent incorporation in March 1996 of a graphical user interface that made
the Telephoto System easier for consumer customers to use.
COMMISSION EXPENSE
Commission expense was $419,000 for the first six months of fiscal 1996
compared to $291,000 for the first six months of fiscal 1995, an increase of
approximately 44%. As a percentage of revenues, commission expense increased
to 34% during the first six months of fiscal 1996 from 29% during the first
half of fiscal 1995, due primarily to an increase in licensing of non-catalog
images and images of independent agencies represented by Index Stock. The
Company paid higher commission rates on both of these types of still images.
In addition, commission expense increased due to the licensing of consumer
market and SOHO images.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $897,000 for the first
half of fiscal 1996 compared to $743,000 for the first half of fiscal 1995,
an increase of approximately 21%. As a percentage of revenues, selling,
general and administrative expenses decreased to 72% for the first half of
fiscal 1996 from 75% in the first half of fiscal 1995, due to a smaller
proportion of revenue spent on direct mailings, advertisements and customer-
relations personnel to sustain sales in the professional markets. The Company
intends to use a portion of the proceeds of this Offering for promotional
activities designed to increase interest in its on-line delivery offerings.
See "Use of Proceeds."
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $260,000 for the first six months
of fiscal 1996 compared to $198,000 for the first half of fiscal 1995, an
increase of approximately 31%. As a percentage of revenues, research and
development expenses increased to 21% for the first half of fiscal 1996 from
20% in the first half of fiscal 1995, due primarily to completion of version
2.0 of the Telephoto System for inventory management, image searching and
retrieval, image key-wording, and rights management. The Company also
commenced several new software development projects involving its website and
CompuServe on-line service.
16
<PAGE>
FISCAL YEAR ENDED OCTOBER 31, 1995 COMPARED WITH FISCAL YEAR ENDED OCTOBER
31, 1994
REVENUES
Revenues were $2,215,000 for fiscal 1995 compared to $1,718,000 for fiscal
1994, an increase of approximately 29%. This increase was due primarily to
increased orders resulting from broader distribution of the Company's printed
catalog and introduction of a CD-ROM catalog, increases in the rate of repeat
business from U.S. customers, expansion of the Company's foreign distribution
network and the entrance by the Company into the consumer and SOHO markets.
COMMISSION EXPENSE
Commission expense was $705,000 for fiscal 1995 compared to $512,000 for
fiscal 1994, an increase of approximately 38%. As a percentage of revenues,
commission expenses increased to 32% during fiscal 1995 from 30% in fiscal
1994 due to an increase in licensing of non-catalog images and images of
independent image suppliers represented by Index Stock.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $1,488,000 for fiscal
1995 compared to $1,071,000 for fiscal 1994, an increase of approximately
39%. As a percentage of revenues, selling, general and administrative
expenses increased to 67% in fiscal 1995 from 62% in fiscal 1994. A portion
of this increase was related to the Company's decision in April 1995 to
expand its efforts directed toward the consumer and SOHO markets for
licensing still images. The most significant component in selling expense
during fiscal 1995 was the cost of production and distribution of printed and
CD-ROM printed catalogs. The Company distributed two printed catalogs and a
CD-ROM catalog during fiscal 1995. It did not distribute any catalog during
fiscal 1994. In addition, advertising costs increased to $156,000 in fiscal
1995, compared to $35,000 in fiscal 1994. The most significant components of
general and administrative expenses are the Company's salary and benefits
costs. These rose during fiscal 1995 as compared to fiscal 1994 as the
Company hired and trained new employees.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $424,000 for fiscal 1995 compared
to $388,000 for fiscal 1994, an increase of approximately 9%. This increase
resulted from the completion by the Company of phases of several development
projects relating to inventory management, image searching and retrieval,
image key-wording, and rights management systems. As a percentage of
revenues, research and development expenses decreased to 19% in fiscal 1995
from 22% in fiscal 1994, due to an increase in Company sales.
FISCAL YEAR ENDED OCTOBER 31, 1994 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1993
REVENUES
Revenues were $1,718,000 for fiscal 1994 compared to $1,386,000 for fiscal
1993, an increase of approximately 24%. This increase was due primarily to
increased orders resulting from the addition of new agents to the Company's
foreign agent network, distribution of a new printed catalog, and an increase
in the average price per transaction with the Company's customers.
COMMISSION EXPENSE
Commission expense was $512,000 for fiscal 1994 compared to $410,000 for
fiscal 1993, an increase of approximately 25%. As a percentage of revenues,
commission expense in fiscal 1994 and fiscal 1993 remained constant.
17
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $1,071,000 for fiscal
1994 compared to $1,066,000 in fiscal 1993. As a percentage of revenues,
selling, general and administrative expenses decreased to 62%, in fiscal 1994
from 77% in fiscal 1993. This improvement was due primarily to benefits from
the Company's automation of its operations and increased sales.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $388,000 for fiscal 1994 compared
to $255,000 for fiscal 1993, an increase of approximately 52%. As a percent
of revenue, research and development expenses increased to 22% in fiscal 1994
from 18% in fiscal 1993. The increase was related to the commencement of
several new software development projects and the related recruitment of
additional development staff.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has satisfied its cash requirements through the
sale of equity securities and borrowings from third parties, including the
Chief Executive Officer of the Company and certain principal stockholders of
the Company. See "Certain Transactions." Sales of such equity securities to
date have aggregated $1,796,000. Cash advances to the Company from its Chief
Executive Officer have aggregated $230,750. During the second quarter of
fiscal 1996, the Company issued an aggregate of $500,000 principal amount of
10% promissory notes, due on the earlier of March 31, 1997 or the closing of
any financing having gross proceeds of not less than $3 million. Such
promissory notes will be repaid from the proceeds of this Offering.
Effective July 1995, the Company converted a $99,000 outstanding line of
credit with Citibank, N.A. to a five year term loan with the bank. The
outstanding balance on October 31, 1995 was $92,400 and is repayable in equal
monthly principal installments of $1,650.
During the period of January 1994 through April 1996, the Company's Chief
Executive Officer made cash advances to the Company aggregating $230,750. A
portion of the net proceeds received in April 1996 from the issuance of
Company's 10% notes was used to repay this indebtedness in full.
The Company believes that based upon its present business plan, the net
proceeds from the sale of the Common Stock offered hereby will be sufficient
to meet its currently anticipated working capital and capital expenditure
requirements for at least the next 12 months. There can be no assurance that
additional capital beyond the amounts currently forecasted by the Company
will not be required nor that any such required additional capital will be
available on reasonable terms, if at all, at such time as required by the
Company.
18
<PAGE>
BUSINESS
Index Stock is both a leading still image provider to traditional users of
stock photography and an Internet content provider. The Company has developed
a proprietary system for image storage, retrieval and transmission (the
"Telephoto System") that allows its employees and customers to find, select
and receive images electronically, using either keyword-or category-based
search techniques. Index Stock licenses its library of more than one million
images for fees based upon the type and nature of their use. Since its
inception, the Company has licensed images to more than 50,000 customers in
35 countries worldwide. These images are provided to commercial users of
stock photography, such as advertisers, graphic designers and publishers, as
well as to emerging new markets of multimedia producers, consumer users and
desktop publishers in the growing small office/home office ("SOHO") market.
Index Stock believes that these emerging markets represent its largest market
opportunity as on-line consumer and distribution networks and Internet use
expand. The Company distributes images through two offices in the United
States, 21 independent foreign agents and the on-line networks of CompuServe,
Prodigy, and the World Wide Web portion of the Internet. Unlike many Internet
content providers, Index Stock's consumer market business will not be
dependent upon its ability to generate revenues from the sale of advertising.
Index Stock has also developed image selection and layout tools that allow
users to search, select and manipulate electronic versions of down-loaded
images. The Company promotes its images using printed and CD-ROM catalogs,
direct sales, direct mail, print advertising and public appearances.
INDUSTRY BACKGROUND
Traditional still image providers, such as stock photography agencies,
provide commercial users with film- based images for use in print and video
applications. Stock photography agencies traditionally serve a broad range of
commercial customers. These include newspapers, magazines, book publishers,
calendar publishers, independent design firms, advertising agencies,
corporate design departments, greeting card publishers, freelance designers,
direct mail houses, television production companies, multimedia publishers,
producers of posters, clothing, puzzles, and other printed products, and
schools, universities, churches and charities.
Although the functions of the still image provider have remained
relatively unchanged over the years, new electronic scanning, searching,
storage and transmission technologies have developed in response to changes
in user needs. These technologies and the proliferation of easy-to-use
desktop publishing software have also generated new market opportunities. The
percentage of new computers shipped with high-quality color and high
resolution video boards increased dramatically during the past five years and
enhanced user ability to receive quality images. International Data
Corporation reported the number of SOHO market customers owning PCs to be 4.9
million in 1995, over 14% of which had multimedia capabilities. At the same
time, on-line communication and consumer distribution networks became easier
to use, less costly and accessible to broad audiences of multimedia, consumer
and SOHO users. Further, the rapid expansion of the World Wide Web allowed
more direct access to on-line communication for these groups.
Still image providers are part artist representative, part content
provider and part direct marketer of products and services. The business is
divided into three principal functions:
Content Collection. Agencies gather many images from photographers,
artists, publications and museums. Although some agencies purchase images,
most, like Index Stock, have an image library and represent on a
commission basis independent photographers and graphic artists or other
independent still image suppliers, who in turn represent additional
artists.
Storage/Retrieval. Agencies sort images into categories and store them.
When a customer requests a certain type of image with a set of
characteristics, agencies respond by offering images from their inventory
that match specific customer specifications.
Sales/Marketing. Agencies solicit photographs from a variety of sources
for use in diversified markets, and most issue catalogs that show the
types of image they specialize in. In recent years, images have begun to
be marketed through CD-ROM catalogs and other user-friendly forms of
electronic transmission
19
<PAGE>
The following illustrates the traditional image flow within a stock
photography agency.
SOURCES USES
- ------------------------ ----------------------
Assignment Photographers Advertising Agencies
Photo Journalists Design Firms
- ------------------------ ----------------------
- ------------------------ -------------------- ----------------------
Agency-Employed Stock Photo Agencies Magazine & Book
Photographers Publishers
- ------------------------ -------------------- ----------------------
- ------------------------ ----------------------
Museums, Libraries Newspapers
Large Corporations
- ------------------------ ----------------------
Source: Index Stock Photography, Inc.
20
<PAGE>
Both stock photo agencies and their customers require cost-effective,
time-efficient and convenient methods of obtaining and delivering still
images. Stock photo agencies have developed as an alternative to the more
costly and time consuming approach of assigning a professional photographer
to obtain specific images. These agencies have traditionally been labor
intensive from the submission of images by suppliers of the agency to the
selection and delivery of images to the agency's customers. This traditional
business has had certain difficulties:
o Physical Transfer of Images
Physically transferring original images from an image supplier to an
agency or from an agency to a customer can be time-consuming and may
result in loss or damage to the images.
o Long Delivery Time
When a customer wants to use an image that is not in a catalog, it may
take a day or more to find the right images and often it is hard for a
customer to describe the image it wants without seeing it. Certain
customers require immediate delivery of an image to use for a layout test
or client presentation.
o Uncertain Cost
Commercial customers need an easy way of knowing in advance how much a
particular planned use of an image will cost. Because of labor
intensiveness, agencies using traditional methods of operation cannot
deliver images cost effectively enough to service small budget customers
with personal or "unusual" needs for images.
THE OPPORTUNITY
The Company's decision to digitize and automate its image library has
enabled Index Stock personnel and customers to reduce costs and time spent in
selecting images. The Company's simplified image selection process provides
customers with direct use of keyword-or category-based search techniques.
Digitalization, automation and changing communication technology have also
enabled the Company to expand beyond traditional stock photography content
sources, into sources such as sound and video libraries. The expansion of the
Internet and the advent of on-line services focused on the consumer have
opened an opportunity for technologically-oriented stock photography agencies
to serve the emerging new multimedia, consumer and SOHO markets. Index
Stock's Telephoto System and new content sources should allow it to expand
into these newer and much larger markets, as well as to provide more
cost-effective and time-efficient service to its traditional commercial base.
21
<PAGE>
The following illustrates new sources of and uses for stock photography
and other electronic content.
SOURCES USES
- -------------------------- ------------------------
Independent Stock Home Users
Photo Agencies Schools, Libraries
- -------------------------- ------------------------
- -------------------------- ------------------------
Assignment Photographer Small Business
Photo Journalists Home Offices
- -------------------------- ------------------------
- -------------------------- ------------------------
Agency-Employed Desktop Publishers Within
Photographers Large Companies
- -------------------------- ------------------------
- -------------------------- ----------------------- ------------------------
Museums, Libraries Index Stock Photography Advertising Agencies
Large Corporations Design Firms
- -------------------------- ----------------------- ------------------------
- -------------------------- ------------------------
Vector Art Libraries Magazine & Book
Sound Libraries Publishers
Visual Libraries
- -------------------------- ------------------------
- -------------------------- ------------------------
Image Manlipulation Newspapers
Hardware & Software Cos
- -------------------------- ------------------------
------------------------
Internet Mails, E-Lines.
_____________Traditional Areas Newsgroups
------------------------
- -------------Already Established New Areas
------------------------
.............Potential New Areas All-Rights-Included
CD-ROM Libraries
-----------------------
Source: Index Stock Photography, Inc.
<PAGE>
To date, more than 150,000 images have been electronically included in the
Company's Telephoto image storage and management system. The Company is
presently able to digitize approximately 1,000 images per week and intends to
incorporate the remaining images currently in its library into the system within
the next three years. A portion of the net proceeds from this Offering will be
used to increase the rate at which the Company can digitize images. The Company
developed tools that allow users to manipulate and customize the selection and
layout of electronic images in the Company's image library. These image
selection and layout tools assisted Index Stock in development of its site on
the World Wide Web portion of the Internet. This site contains selected Index
Stock images, prices for using images, information on Index Stock's
photographers and business policies, links to other web sites that the Company
believes will be of interest to its customers, and other products such as CD-ROM
image collections and T-shirts. While commercial users requiring high-resolution
versions of images may still need physical delivery of images selected for use,
the selection process has been streamlined by reducing the cycle time from
customer inquiry to delivery. Users not requiring high-resolution versions may
receive delivery electronically.
Multimedia, consumer and SOHO users can access and license images through
the Company's Photos To Go(TM) service (available both on CompuServe and the
World Wide Web), through Sprint's TPX system, through Knight-Ridder's
PressLink system, and through Infonautics' Electric Library service
(available currently on Prodigy, the Microsoft Network, and the World Wide
Web). These markets accept medium-and low-resolution quality images that can
be delivered electronically for fees consistent with the price sensitivity of
these markets. These users can manipulate or customize any down-loaded image.
The Internet permits a broad range of individual and business users
worldwide to access information and to communicate with others via electronic
transfer. In particular, the World Wide Web allows content providers, like
the Company, to publish and interlink information or content on-line and
allows users easily to find and retrieve it.
22
<PAGE>
The following illustrates the homepage of Index Stock's website.
- ------------------------------ ---------------------------------
PHOTOS FOR PHOTOS FOR
CONSUMERS PROFESSIONALS
- ------------------------------ ---------------------------------
PICTURES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
. Image Search . Photography: . What's New . Resource Links . V.I.P. Registration
. Consumer & Small The Hobby . About Index Stock . Webmaster's Choice . Telephoto(TM) Brawser
Business Pricing . Caption Contest . IndexLinx Sites . Building A Home Page . Photo Catalogs
. Photos To Go(TM) . T-Shirts . Photographer Profiles . Copyright & Licensing . Special Collections
CD-ROM . Custom Merchandise . Photo Submissions . About Stock Photos . Electronic Delivery
. Special Promotions . Background Tile Sets . Job Postings . PACA . New Photograph
</TABLE>
- ------------------------------------------------------------------------------
This site is best viewed with Netscape Navigator. To contact Index, send your
e-mail message to Webmaster@index stock.com. Our mailing Fifth Avenue, New York,
NY 10011. Telephone: 212-929-4644 Fax: 212-633-1914.
- ------------------------------------------------------------------------------
23
<PAGE>
STRATEGY
The Company's objective is to be the leading provider of still images to
both traditional advertising and publishing users and to new multimedia,
consumer and SOHO users. The Company's strategy includes the following key
elements:
MAINTAIN LEADING EDGE TECHNOLOGY
The Company will continue to use leading edge technology to automate fully
all aspects of its business. Index Stock believes that its Telephoto System
provides it with a strategic advantage in gathering, processing and
distributing content. The Company will continue to upgrade its technology
platform to maintain the advantages of ease of access, convenience and lower
cost per use.
DELIVER NEW MARKETS
The Company intends to expand its efforts to reach the new multimedia,
consumer and SOHO markets through its site on the World Wide Web and through
its on-line and consumer distribution networks. Index Stock will use on-line
consumer services and the Internet to educate customers about additional ways
to access and use its content. The Company will also continue to promote its
products through direct mail, e-mail, print advertising, public relations and
referrals.
EXPAND INTERNATIONAL PRESENCE
The Company intends to leverage its existing network of international
agents and the communications capabilities of the Telephoto System to further
develop its professional and consumer market licensing efforts outside of the
U.S.
EXPAND IMAGE COLLECTION
The Company intends to increase significantly the number of images
contained in its image library and make substantially all of its images
accessible electronically. Index Stock intends to expand the Company's image
collection by continuing to add photographers, acquire additional collections
and affiliate with other sources of still images. The Company also intends to
solicit exclusive rights to represent image collections held by major
corporations and libraries. For example, Index Stock has obtained the right
to represent much of the Northrup Grumman Corporation's collection of color
and black & white images.
DELIVER ADDITIONAL CONTENT
The Company intends to use its Telephoto System as a platform for delivery
of a variety of content-based products and services other than still images.
For example, the Company has made Graphic Corp. fonts available to its
customers for downloading and will explore offering other new products and
services that deliver content other than still images.
DELIVERY ALTERNATIVES AND PRODUCTS
In the past, Index Stock sent commercial users of stock photography
original positive transparencies delivered on a same day or overnight basis.
When possible, the Company delivered high-quality duplicates of its most
valuable images. These duplicates were also delivered physically to the
Company's foreign agents. Certain commercial users in the United States now
receive images from the Company in files of scanned electronic form on a
floppy disc, CD-ROM or removable hard disc. The Company can deliver up to a
16MB file size scan of selected images. Under certain circumstances, the
customer can create a final product directly from this file without using a
film version of the image. Customers requiring immediate delivery of images
can also receive them via e-mail or fax. Index Stock has also produced a
number of CD-ROM discs sold through retail mail order channels. The purchaser
of these CD-ROM discs obtains the right to use the images included on these
discs for certain types of design and advertising projects.
New distribution technologies have also been employed to deliver images.
For example, the Company was able to transfer 5,000 images to an on-line
distribution network using a File Transfer Protocol (FTP) Server on the
Company's World Wide Web site. Index Stock uses standard utilities to create
correct file sizes for this system and provides a copyright notice on each
image. It then uses a simple conversion program to transfer the required
keywords for this service from its SQL Server database. The Company also
recently delivered other sets of images to customers and distribution
networks on floppy discs, Syquest(R) discs, CD-ROM, by e-mail and on 4mm DAT
tape.
24
<PAGE>
The Company also supports on-line viewing and retrieval of its images
through six different on-line services:
Telephoto(TM) is the Company's proprietary, Internet-based browsing
system. Using this system, the Company's customers can search for images,
view them, and download medium-resolution versions for layout and design
work. The system is offered only to selected customers, and carries no
subscription or use charges. Customers pay only for using images in their
projects.
Photos to Go(TM) on CompuServe allows any CompuServe user to search for
and download images directly from the Company's database. CompuServe handles
all of the billing and tracking operations associated with this service.
- ------------------------------------------------------------------------------
Photos To Go
[Screen shot of Company's Photos to Go
service on CompuServe]
How to use Photos to Go
Who Should use Photos to Go
About Photos to Go
Talk to Us: Our Feedback Form
Photos To Go Products
Will I Be Charged?
Pictures
- ------------------------------------------------------------------------------
Photos to Go(TM) on the World Wide Web allows Internet customers to search
directly for and view images that are stored on the Company's Internet site.
Customers can pay to download images using any major credit card.
The Picture Exchange ("TPX"), an operation of Sprint, allows customers to
browse for images using a free-text search engine and download
medium-resolution versions for layout use. Currently, TPX customers must pay
to TPX a one-time subscription fee and a fee for the time they are connected
to the service. Customers pay the Company directly for each medium-resolution
image they download.
PressLink, offered by Knight-Ridder to newspapers, publishers, and other
image-using customers, both in the U.S. and Europe, allows customers to
download images directly from the service. Customers pay all fees to
PressLink and are charged for the images they use and for various connection
and set up costs. Index Stock receives a portion of content fees charged by
Presslink to its users.
Electric Library from Infonautics offers the Company's images as part of
an on-line information service that is distributed through both the Prodigy
Network and the World Wide Web portion of the Internet (address
http://www.infonautics.com). The Company receives a portion of the
subscription fees that Infonautics receives from its users.
The Company is evaluating other methods of delivering its product and
creating an awareness of imaging in nontraditional imaging markets. To date,
this has included (i) incorporating groups of images into other companies'
software products, such as Corel and PhotoDisc CDs; and (ii) producing
CD-ROMs with large numbers of low-resolution images suitable for personal use
only.
25
<PAGE>
NEW PRODUCTS
The Company has also begun developing several new products that deliver
content other than still images. The first of these was introduced in
November 1995. It was a set of image-carrying T-shirts called "BBTs" that are
available for purchase through the Company's web site. At present, the
Company offers image-carrying T-shirts, sweat shirts, and caps.
[Screen shot of Product Order Form]
SECTION A - ORDER YOUR FASHION STATEMENTS HERE
Pictures
Section 1 Section 2 Section 3
Quantity: Quantity: Quantity:
(Fill in number) ___ (Fill in number) ___ (Fill in number) ___
Item: (Check ONE) Item: (Check ONE) Item: (Check ONE)
__T-shirts @ $12.97 __T-shirts @ $12.97 __T-shirts @ $12.97
__Sweatshirt @ $23.97 __Sweatshirt @ $23.97 __Sweatshirt @ $23.97
__Cap @ $11.97 __Cap @ $ 11.97 __Cap @ $11.97
Design: (Check ONE) Design: (Check ONE) Design: (Check ONE)
__BBT#1001 __BBT#1001 __BBT#1001
__BBT#1002 __BBT#1002 __BBT#1002
__BBT#1003 __BBT#1003 __BBT#1003
__BBT#1004 __BBT#1004 __BBT#1004
__BBT#1005 __BBT#1005 __BBT#1005
OPERATIONS
Index Stock offers a varied and changing supply of still image content
that it believes to be responsive to changing taste and demand for different
themes. Attracting and maintaining representative relationships with
desirable photographers and independent agencies is an important part of
having the necessary inventory to respond to customer requests. The proper
cataloging of images is critical to controlling the receipt of images from
suppliers and responding to user requests in a timely manner. Index Stock
strives to be identified with high-quality still images, a broad range of
image subjects and a convenient system for accessing and retrieving images.
LICENSE FEES
The Company licenses photographs and still images to its customers for a
fee. Fees vary based upon the type and nature of use. Typical fees for
commercial users average $475 per image. The consumer and SOHO customers
access images on-line and through the Internet and are charged a fee varying
from about $5 to $100 per image, paid for using credit cards.
The Company has been selective in its engagement of the photographers,
graphic artists and agencies whose images the Company markets. Index Stock
constantly seeks new image providers and independent agencies with
reputations for high-quality work. The Company believes that this emphasis on
image quality has helped it establish a favorable reputation in the industry.
The license fees charged reflect fundamental differences between the
traditional stock photo image market and the emerging new multimedia,
consumer and SOHO markets. Fees charged in the emerging markets are expected
to remain lower than those charged in commercial markets, although the
Company's costs of completing a customer transaction are expected to be
significantly lower. It is anticipated that the volume of users will be
greater in the emerging markets due to the large universe of potential users.
The fee differential is justified by the Company's expectation that the
consumer and SOHO market user will review far fewer images before making a
decision, will generally not require the level of staff assistance available
to commercial users and will use images only for personal and educational
uses.
26
<PAGE>
The fee differential is also justified by the differences in the quality
of resolution and types of images typically licensed to the traditional and
the emerging consumer and SOHO market users. The Company licenses only
compressed, medium-resolution images to consumer and SOHO users who generally
do not have sufficiently powerful computers or printers able to take
advantage of high-resolution images frequently required by traditional market
users. Traditional and consumer users also generally request different types
of images. The former tend to look for images of business situations,
technology, medical situations, sports, people at leisure, and nature scenes.
To date, the latter have generally requested images of people expressing
emotions, humorous situations, sports, animals, travel scenes and nature. As
a result, the same image is not usually licensed to users in both of these
distinct markets with their significant price differences. There is no
assurance that this will not change.
COMPUTERIZED TRACKING
The Company's library staff operates a computerized submission tracking
system that catalogues each image that is submitted and retained by the
Company. The editing staff selects the best images from each submission,
retaining typically between 5% and 50% of the images it receives. The library
staff relies upon custom programs to categorize and bar-code the selected
images and to record the return of the remaining images to the photographer
or image supplier. Each selected image is scanned at a medium resolution
using a Company custom-built, mechanized scanning system. Keyword operators
enter a description of each scanned image into an SQL Server database using a
structured vocabulary developed by the Company based upon customer service
experience.
CUSTOM BROWSER SOFTWARE
Index Stock's custom browser software allows sales personnel in the
Company's New York and Los Angeles offices to respond to customer inquiries
to locate images using broad categories, specific keywords, or combinations
of both. The software permits them to search image caption fields or select
images from a particular photographer. The library and editing staff also use
this browser to evaluate the need for additional images in specific image
categories and to review a photographer's work and popularity among its
customers. The browser can retrieve hundreds of images within a few minutes.
The current version operates on both IBM-compatible and Apple Macintosh PCs.
The Company has also installed the browser on a developmental basis on the
computers of several of its larger customers. The Company is currently
distributing the browser to many of its traditional customers.
Pictures
[Screen shot of Company's Telephoto Browser
showing 12 images available to users
resulting from a keyword search]
27
<PAGE>
MARKETING
Index Stock produces all of its advertising and sales promotion materials
in-house, using desktop publishing software. The Company has produced CDs of
images with both outside vendors and in-house personnel. During the
development of this delivery medium, the Company believes that it acquired
valuable information about image data storage, CD cataloging, CD packaging
and artwork, and end-user instructions.
A network-based sales management system records all contacts with Company
customers. The system helps Index Stock plan for future customer calls and
records special customer preferences and needs. It also assists in the
maintenance of the Company's mailing lists and provides marketing information
to guide the Company in its image acquisition and promotion efforts. The
Company currently uses internal direct sales personnel to sell images to
traditional users of still images.
U.S. MARKETING
The Company presently markets its images through printed and CD-ROM
catalogs, on floppy or other types of removable discs, and through e-mail or
fax delivery. The Company has created awareness of its products among
traditional commercial users by direct sales contact and through the
Company's printed and CD catalog. The Company is also seeking to establish
user awareness through news articles and promotions with on-line network
distribution channels. Index Stock monitors the number of times prospective
customers access the Company's World Wide Web site or its on-line network on
Compuserve. The rates of access have steadily increased since July 1995 when
the Company began tracking this information.
The Company believes that one way of evaluating the success of the
Company's marketing programs and effectiveness of its sales force is to
monitor the percentage of customer requests for images that result in the
licensing of an image. During the period 1992 through 1995, this rate of
conversion improved from approximately 60% to 70%. Index Stock believes that
this improvement resulted from having an expanded library, a reputation for
high quality, and a staff capable of responding to customer needs in a timely
and efficient manner. The staff's ability to deliver these services is
directly linked to the development and use of the Company's Telephoto System
for electronic image storage, retrieval and transmission.
INTERNATIONAL MARKETING
A significant portion of the Company's revenues are derived from the
licensing of images in the traditional advertising and design markets in
foreign countries. Index Stock currently markets images in 34 foreign
countries through 21 independent foreign agents.
CONSUMER MARKETING
In order to further develop awareness among potential consumer and SOHO
customers, Index Stock has begun sponsoring contests, "chat" sessions, and
links to other image-related activities. Advertising is expected to become
more prominent in the marketing and development of these markets. The Company
has also arranged to provide information and discounts on hardware and
software from companies like Specular(TM), Adobe, Macromedia(TM), U-Lead(TM),
and Equilibrium(TM). The Company's site on the World Wide Web currently
contains links to more than 50 other web sites. Management expects that these
and other steps such as direct mail and print advertisement, will increase
overall traffic in its on-line area, although there can be no assurance.
There can be no assurance that increased awareness will result in actual
transactions with the Company.
COMPETITION
The still image business is fragmented and competitive. Participants in
the industry compete based upon the size of their image library, quality of
images available for license, price and service. Index Stock's competitors
have not reacted to the advent of electronic imaging and changing
communication technologies in any uniform manner. The Company believes that
digitizing and automating fully image storage, retrieval and transmission is
important to the Company's planned growth and provides a strategic advantage
over its competition. The Company believes that its competitors who use
electronic scanning are only scanning selected images, while the Company
plans to make its entire collection available electronically. The Company
believes that its approach in this area will contribute to improved customer
service and satisfaction while reducing the costs incurred by the Company in
connection with the delivery of its products and services.
It is possible that new competitors for on-line stock photo services may
come from outside of the traditional stock photography industry. Index Stock
is aware of several large companies that have decided to set up
28
<PAGE>
third-party multimedia networks. For example, PhotoDisc, a major supplier of
photo-based CD-ROMs, is offering images from its discs to customers through a
searchable web site. Picture Network International ("PNI") has indicated that
it has scanned, keyworded and stored approximately 400,000 images obtained
from 64 sources. Its customers can access this database through PNI's site on
the World Wide Web. Depending upon the size of the job, the customer will
contract directly with PNI or be referred to the image provider. Corbis, Inc.
has announced that it has the right to distribute electronic versions of
several hundred thousand images from several sources. Corbis has a forum on
America On-Line and a searchable site on the World Wide Web and announced
plans to build on-line services and CD products around stock and art photos.
Index Stock believes that the Company's direct contacts with customers and
photographers differentiate it from its competition and provide Index Stock
with valuable marketing information that would not be available under these
competitors' approach to the business. However, these competitors may have
larger staffs than Index Stock and greater financial resources available to
them.
PROPRIETARY RIGHTS
The Company does not own any of the still images in its library. Index
Stock contracts with copyright owners to pay a fee based upon use of its
images. This right generally includes the right to duplicate the image, store
it in the Company's database, and distribute it to the Company's customers
and agents, domestic and foreign. In certain instances the Company's right to
use an image may be geographically restricted or have other special limits on
use.
The Company's standard contract with image providers generally provides
for a five-year term and requires that the image provider furnish all copies
of the covered images to the Company on an exclusive basis. These agreements
typically require the Company to make quarterly royalty payments based upon
licensed fees collected by the Company from its customers. The actual royalty
paid ranges from 25% to 70% of the amounts received by the Company. The
precise terms of each contract may differ and the details of any particular
contract are stored on-line in the Company's database. The Company's
contracts with image providers include provisions releasing the Company from
claims or liability resulting from the physical loss of or damage to an image
in the Company's library or the misappropriation or misuse of the image by
any third party. The Company maintains in multiple locations duplicates of
the most popular images in its image library.
The Company's Telephoto System for image storage, retrieval and
transmission of still images is protected as a trade secret of the Company
and is not covered by any patents. Each employee who has participated in the
development of this proprietary system or has access to it has entered into a
confidentiality and nondisclosure agreement with the Company designed to
prevent unauthorized use or disclosure. See "Risk Factors."
The Company has obtained a fully paid-up nonexclusive worldwide license
to use patent rights covered by a certain United States patent owned by
E-Data Corporation. This patent pertains to certain processes involving
electronic distribution of images.
FACILITIES
The Company leases its headquarters in New York City, consisting of
approximately 7,000 square feet, pursuant to a lease that expires on December
31, 1996. The Company will continue to maintain its headquarters in New York
City and move to a 16,500 square foot facility that will be ready for
occupancy in July 1996. The new lease has an initial term of seven years and
seven months and an initial base annual rent of $185,625, increasing over
the term to $221,645 per annum. Index Stock also leases its office in Los
Angeles, consisting of approximately 140 square feet, on a month to month
basis. Management believes that its facilities are adequate for its present
level of planned operations.
EMPLOYEES
At May 31, 1996, the Company had 39 full time employees, including 15
relating to sales or sales management, 7 related to development of electronic
products and services, 12 related to handling of images, and 5 related to
administration. The Company also had 5 part-time employees, working primarily
in the image- handling area. The Company believes that its relations with its
employees are good. None of the Company's employees is represented by a labor
union or is subject to a collective-bargaining agreement.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
29
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, key personnel and directors of the Company and
certain information about them are set forth below.
Name Age Position
------------------- ----- ------------------------------------------------
Bahar Gidwani ..... 41 Chairperson of the Board and Chief Executive
Officer
Christopher Ferrone. 38 Vice-President International
Lindsey Nicholson . 30 Vice-President Editing
Michael Uffer ..... 44 Vice-President Technology
Leslie Gerber ..... 30 Vice-President Production
Kathy Mullins ..... 54 Vice-President Electronic Services
Robert N. Paltos .. 51 Vice-President Sales
James D. Pyden .... 39 Chief Financial Officer
Nina Palmieri ..... 32 Vice-President Library Services
Susan Fournier .... 38 Director
Kent Lawson ....... 51 Director
Arthur M. Schneck . 70 Director
All directors hold office for one year terms or until their successors are
elected and qualified. Officers serve at the discretion of the Board of
Directors. Non-employee directors will receive $1,000 for each meeting
attended and be entitled to receive stock options granted by the Board of
Directors upon the recommendation of the Compensation Committee.
Bahar Gidwani has been Chairperson of the Board and Chief Executive
Officer since he founded the Company in 1991. Prior to founding Index Stock,
Mr. Gidwani worked from 1983 through 1990 in the Research Department of
Kidder, Peabody & Co. where he ultimately attained the level of
Vice-President and Shareholder. From 1981 through 1983, Mr. Gidwani worked
for McKinsey & Co. in both its New York and Lisbon offices. From 1976 through
1979, Mr. Gidwani worked for Burroughs Corporation as a software developer,
project manager, and account executive in its Boston and Hong Kong offices.
Mr. Gidwani received an MBA degree with Highest Distinction (Baker Scholar)
from Harvard Business School in 1981 and received his designation as a
Chartered Financial Analyst (CFA) in 1986.
Christopher Ferrone has held various managerial and supervisory positions
with the Company. Presently, he supervises the operations of the Company's
New York office and manages the Company's relationships with its
international agents. Before joining Index Stock, Mr. Ferrone worked as a
credit analyst and loan officer with The Bank of Tokyo and as an assistant
treasurer at U.S. Trust.
Lindsey Nicholson joined Index Stock in 1992. She had previously worked
for six years with another major stock photography agency, The Stock Market,
where she managed the photography department and directed its international
distribution effort. Ms. Nicholson's duties include designing the Company's
catalog and directing its relations with its photographers.
Michael Uffer joined Index Stock in October 1993 and is responsible for
directing its development operations. Prior thereto, Mr. Uffer led several
development efforts for Popkin Software, a leading developer of Computer
Aided Software Engineering tools. From 1985 through 1991, Mr. Uffer held
positions of increasing responsibility in the development operation of
Information Builders, a major supplier of cross-platform database tools.
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<PAGE>
Leslie Gerber joined Index Stock in September 1993, and is responsible for
the Company's scanning and keywording operation. Prior thereto, Ms. Gerber
worked for the City of New York from September 1991 through 1993 and The
Image Bank from March 1990 through June 1991, another major stock photo
agency.
Kathy Mullins joined Index Stock in November 1992 and is responsible for
all aspects of the Company's consumer and SOHO marketing programs. Prior
thereto, she spent eight years leading marketing activities for Comstock,
another major stock photo agency. While with Comstock, Ms. Mullins helped
develop its direct mail and advertising programs and participated in its
international expansion. In addition to her BA degree, she recently received
a diploma in Direct Marketing Management from New York University.
Robert N. Paltos joined the Company in May 1996 as Vice-President. He was
National Sales Manager for Prodigy Services Company from 1984 through 1996,
with responsibility for advertising and marketing national accounts. From
1984 through 1988, he was Regional Vice-President for Western Union
Corporation, with responsibility for managed sales/marketing activities for
Western Union's Network Services division. Mr. Paltos received a BA degree
with honors from St. John's University. He also attended New York
University's Graduate Program, Government & Business Studies.
James D. Pyden joined the Company in May 1996 as its Chief Financial
Officer. Prior thereto, Mr. Pyden was Corporate Controller for Computron
Software, Inc. from October 1995 through May 1996 and held various positions
with Allerion Inc., from 1981 through September 1995, including
Vice-President and Controller. From 1981 through 1984, Mr. Pyden also worked
as an auditor in the Morristown, New Jersey offices of Deloitte & Touche. Mr.
Pyden holds a BA degree from Michigan State University.
Nina Palmieri joined Index Stock in May 1996 as its library manager. Prior
thereto, Ms. Palmieri was Director of Customer Service at The Stock Market,
another major stock photo agency, where she was employed for five years. In
addition, she has several years of experience in retail management. Ms.
Palmieri holds a bachelors of fine arts degree from the School of Visual
Arts.
Susan Fournier has been a director of the Company since May 1996. Since
1994, she has been an Assistant Professor of Business Administration at the
Harvard Business School. From 1985 through 1989, Ms. Fournier was a
Vice-President and Associate Research Director at Young & Rubicam
Advertising. She specializes in the study of customer relationship building.
Kent Lawson has been a director of the Company since May 1996. Mr. Lawson
is the founder and president of Magna Software Corporation, a 20-year old
software development tools company. Mr. Lawson holds a BA degree in Economics
from Beloit College and an MBA degree from Washington University. He has
attended the American Management Associations's Executive Management Course
and completed the Harvard Business School's Owner/President's Management
program.
Arthur M. Schneck has been a director of the Company since May 1996. Mr.
Schneck is a senior partner in the law firm of Schneck Weltman Hashmall &
Mischel LLP, counsel to the Company. Mr. Schneck received an LLM degree in
taxation and JD degree from Brooklyn Law School, and a BBA degree from the
City College of the City University of New York.
BOARD OF ADVISORS
The Company has an advisory board that meets with its key management
quarterly to review the Company's performance and help it form its strategic
plans. Some members receive cash compensation, which is currently fixed at
$250 per meeting, and stock option grants. All members receive reimbursement
for any travel and lodging costs.
The following persons presently serve on the Board of Advisors:
Joanna Ferrone was the founder of Index Stock International, Inc., the New
York based photo stock photography agency from which the Company acquired
certain assets in 1991. She is also the co-owner of the Fido- Dido and other
cartoon characters. Ms. Ferrone owns an extensive image collection that is
represented by the Company.
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<PAGE>
Raeanne Rubinstein was the founder of Telephoto, Inc., a New York based
stock photo agency, some of whose assets the Company acquired in March 1992.
She is a well-known photographer who specializes in images of musical
personalities. Her non-celebrity work is represented by the Company.
Philip Schaeffer is Senior Vice-President of Robert Fleming Inc., in
charge of the Special Credits Group. Prior to joining Robert Fleming, Mr.
Schaeffer founded and operated his own fund management company in partnership
with Cowen & Co. From 1981 through 1985, Mr. Schaeffer worked with the
Taubman Group of Companies in positions of successive responsibility,
including Chief Financial Officer of A&W Restaurants, Inc. Mr. Schaeffer
received an MBA degree with high distinction from Harvard Business School in
1981 and is a Certified Public Accountant (CPA).
Allen Russell was the founder of ProFiles West, a Colorado-based agency
that specialized in images that portrayed the Western lifestyle. He joined
the board in January 1996 following completion of the Company's acquisition
of selected assets from his company. Mr. Russell is a well-known photographer
and authority on the stock photo industry. The majority of his work is
represented by the Company.
BOARD COMMITTEES
The Board of Directors plans to establish a Compensation Committee and
Audit Committee following the completion of this Offering, the majority of
which will be comprised of non-employee directors. The Compensation Committee
will make recommendations to the Board concerning salaries and incentive
compensation for the Company's officers and employees, including
administration of the Company's 1992 Non-Qualified Stock Option Plan. The
Audit Committee will review the results and scope of the audit and other
accounting related services and review and evaluate the Company's internal
audit and control functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee or Audit Committee
during the fiscal year ended October 31, 1995. Mr. Gidwani participated in
establishing his officer's compensation during such fiscal year.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded or paid by the
Company for services rendered to the Company by the Company's Chief Executive
Officer ("Named Executive Officer") in all capacities during the fiscal year
ended October 31, 1995. No executive officer of the Company received more
than $100,000 in salary, bonus or other compensation during the fiscal year
ended October 31, 1995.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name and Principal Position Salary
- ----------------------------- ---------
Bahar Gidwani, Chief Executive 1995 $90,000
Officer 1994 90,000
1993 90,000
1992 NON-QUALIFIED STOCK OPTION PLAN
The Company's 1992 Non-Qualified Stock Option Plan, as amended (the "1992
Plan"), provides for the grant to employees, directors and consultants of
nonstatutory stock options to purchase an aggregate of 198,600 shares of
Common Stock. At January 31, 1996, there were outstanding under the 1992 Plan
131,076 options to purchase shares of the Company's Common Stock.
The 1992 Plan is administered by the Board of Directors (the
"Administrator"). Options are not transferable by the recipient except by
will or by the laws of descent and distribution, and are exercisable during
the lifetime of the recipient only by such recipient. The Options granted
under the 1992 Plan must be exercised within three months of the end of
optionee's status as an employee or consultant of the Company, or within
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<PAGE>
twelve months after such optionee's termination by death or disability, but
in no event later than the expiration of the option term. The exercise price
of all stock options granted under the Plan is determined by the
Administrator, based upon fair market value thereof as of the date of grant.
The maximum term of an option granted under the Plan may not exceed ten years
from the date of grant. The Company retains a right of first refusal to buy
any shares obtained through the exercise of the options that are subsequently
offered for sale.
In November 1995, the Company granted Mr. Bahar Gidwani, Chairperson of
the Board and Chief Executive Officer, a five year option to purchase 13,240
shares at a price per share of $4.53, of which 6,620 shares were immediately
exercisable and the balance exercisable one year from the date of grant.
MANAGEMENT-EMPLOYEE AGREEMENTS
The Company has entered into an employment agreement with Mr. Bahar
Gidwani. The agreement provides that Mr. Gidwani will serve the Company as
Chief Executive Officer and Chairperson of the Board for a three-year period
commencing July 1, 1996. During this period, Mr. Gidwani will be paid an
annual salary of $120,000 and be entitled to bonuses payable in cash or
stock, as determined by the Board of Directors in its discretion, upon the
recommendation of the Compensation Committee. Mr. Gidwani will also be
entitled to benefits made available generally to senior level personnel of
the Company, including without limitation, participation in any stock option
or incentive programs established by the Board of Directors.
The Company has non-disclosure and confidentiality agreements with each of
its executive officers, key personnel and persons who participated in the
development of the Telephoto System. These agreements prohibit disclosure of
confidential information to anyone outside of the Company both during and
subsequent to employment and require disclosure to the Company of ideas,
discoveries or inventions relating to or resulting from the employees' work
for the Company and assignment to the Company of all proprietary rights to
such ideas, discoveries or inventions. These agreements also provide that
these employees will refrain from accepting employment from any business that
competes with the Company for a period of one year following termination of
employment with the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation (the "Charter") contains
certain provisions permitted under the Delaware General Corporation Law
("DGCL") relating to the liability of directors. These provisions eliminate a
director's liability for monetary damages for a breach of fiduciary duty,
except in certain circumstances involving certain wrongful acts, such as the
breach of a director's duty of loyalty or acts or omissions that involve
intentional misconduct or a knowing violation of law. The Charter also
contains provisions indemnifying the directors and officers of the Company to
the fullest extent permitted by the DGCL. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such
indemnification.
Insofar as indemnification for liabilities arising under the Securities
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 Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable.
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<PAGE>
CERTAIN TRANSACTIONS
In 1991, the Company sold shares of its Preferred Stock in a private
financing. Mr. Bahar Gidwani, Chief Executive Officer, a director and a
principal stockholder of the Company, purchased 74,475 shares, Polaris Fund
L.P., of which Messrs. James Lynch and Timothy Draper are general partners
(see "Principal Stockholders"), purchased 82,750 shares, Mr. Andrew Shechtel,
a principal stockholder of the Company (see "Principal Stockholders"),
purchased 66,200 shares and The Timothy C. Draper Revocable Living Trust, of
which Mr. Draper is trustee, purchased 16,500 shares for $3.02 per share, the
price paid by all investors in such offering. Mr. Draper's sister also
purchased 16,550 shares at the same price. Each of the Company's outstanding
shares of Preferred Stock will convert to one share of Common Stock upon the
closing of this Offering.
In 1993, the Company sold shares of Common Stock in a private financing.
Mr. Shechtel and Polaris Fund L.P. purchased 60,181 shares and 30,091 shares,
respectively, for $3.32 per share, the price paid by all investors in such
offering.
In 1995, the Company sold shares of its Common Stock in a private
financing. In such financing, Mr. Gidwani purchased 3,972 shares, Polaris
Fund L.P. purchased 3,972 shares, Ms. Joanna Ferrone, an independent
photographer represented by the Company, a principal stockholder of the
Company and a member of the Company's advisory board (see "Principal
Stockholders"), purchased 2,383 shares and Mr. Shechtel purchased 35,748
shares, each at a price of $4.52 per share, the price paid by all investors
in such financing. In January 1996, Mr. Shechtel also purchased 19,860 shares
and a warrant to acquire 9,930 shares, exercisable prior to January 24, 1999,
at $4.98 per share, for an aggregate purchase price of $99,000.
In April 1996, the Company issued to six investors for $500,000 an
aggregate of $500,000 principal amount of 10% notes (the "10% Notes") and
warrants to purchase in the aggregate 132,400 shares of Common Stock at a
purchase price per share of $6.04, exercisable prior to March 31, 2001. In
this transaction, Mr. Shechtel purchased $200,000 principal amount of the 10%
Notes, together with warrants to purchase 52,960 shares. Polaris Fund L.P.
purchased $70,000 principal amount of such notes, together with warrants to
purchase 18,536 shares. In addition, The Timothy C. Draper Revocable Living
Trust, of which Mr. Draper is trustee, and Mr. Draper's sister purchased
$30,000 principal amount of the 10% Notes and warrants to purchase 7,944
shares.
During the period of January 1994 through April 1996, the Company's Chief
Executive Officer made cash advances to the Company aggregating $230,750. A
portion of the proceeds of the sale by the Company of its 10% Notes in April
1996 was used to repay such indebtedness in full. No interest was charged or
accrued with respect to the advances.
The Company believes that all of the foregoing transactions were made upon
terms and conditions at least as favorable as those available from
disinterested third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock and is adjusted to reflect
the sale of the shares of Common Stock offered hereby, by (i) each person (or
group of affiliated persons) who is known by the Company to own beneficially
5% or more of the Company's Common Stock, (ii) each of the Company's
directors, (iii) the Named Executive Officer and (iv) all directors and
executive officers as a group. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them.
<TABLE>
<CAPTION>
Percentage
Ownership
------------------------
Number of Shares
Beneficially Before After
Beneficial Owner - Name and Address Owned(1) Offering Offering
- ----------------------------------------------- ------------------- ---------- ----------
<S> <C> <C> <C>
Bahar Gidwani ................................. 747,067 54.1% 31.4%
126 Fifth Ave., New York, NY 10011
Andrew Shechtel ............................... 244,879(2) 17.7% 10.3%
33 Witherspoon Street, Princeton, NJ 08542
James Lynch ................................... 135,349(3) 9.8% 5.7%
James Yarmon
103 Laurel Hill Circle, Chapel Hill, NC 27514
Timothy Draper ................................ 184,337(4) 13.3% 7.7%
103 Laurel Hill Circle, Chapel Hill, NC 27514
Joanna Ferrone ................................ 112,716 8.2% 4.7%
155 Avenue of the Americas, New York, NY 10013
Susan Fournier ................................ 1,324(5) * *
Harvard Business School, Soldiers Field Road
Boston, MA 02163
Kent Lawson ................................... 0 * *
275 Seventh Avenue, New York, NY 10001
Arthur M. Schneck ............................. 9,930(6) * *
1285 Avenue of the Americas, New York, NY 10019
All directors and executive officers as a group
(4 persons) .................................. 766,265 55.5% 32.2%
</TABLE>
- ------
* less than one percent
(1) Includes 6,620 shares issuable upon exercise of an outstanding option
granted under the 1992 Plan.
(2) Includes 62,890 shares issuable upon exercise of outstanding warrants.
(3) Includes 18,536 shares issuable upon exercise of outstanding warrants.
Messrs. Lynch and Yarmon are general partners of Polaris Fund L.P., the
record owner of such shares. They share voting and investment power
respecting such shares with Timothy Draper, also a general partner of
Polaris Fund L.P. The Fund is a limited partnership formed to provide
venture capital to early-stage development companies.
(4) Mr. Draper is a general partner of Polaris Fund L.P., the beneficial
owner of 135,349 shares, and shares voting and investment power
respecting such shares with James Lynch and James Yarmon, also general
partners of Polaris Fund L.P. Mr. Draper is also the beneficial owner of
48,988 shares as to which he has sole voting and investment power. Of
such shares, 3,972 shares are issuable to him upon exercise of
outstanding warrants, 20,522 shares are owned of record by his sister,
and 3,972 shares are issuable to his sister upon exercise of outstanding
warrants. Mr. Draper disclaims any economic interest in the shares or
warrants owned of record by his sister.
(5) Shares issuable upon exercise of outstanding options granted under the
1992 Plan.
(6) Such shares are beneficially owned by Schneck Weltman Hashmall & Mischel
LLP, of which Mr. Schneck is a partner; includes 6,620 shares issuable
upon exercise of options granted under the 1992 Plan.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, $.0001 par value, and 2,000,000 shares of Preferred Stock,
$.01 par value.
COMMON STOCK
As of May 15, 1996, there were 1,366,523 shares of Common Stock
outstanding, held of record by 28 stockholders (assuming the conversion to
Common Stock of all outstanding shares of Preferred Stock upon the closing of
this Offering and excluding any shares issuable upon exercise of outstanding
options or warrants aggregating 273,406 shares). The holders of Common Stock
are entitled to one vote per share on all matters to be voted on by the
stockholders. Subject to preferences that may be applicable to Preferred
Stock issuable in the future, if any, the holders of Common Stock are
entitled to receive ratably such dividends as may be declared from time to
time by the Board of Directors out of funds legally available therefor. In
the event of the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior liquidation rights of
Preferred Stock then outstanding, if any. The Common Stock has no preemptive,
conversion or other subscription rights. There are no redemption or sinking
funds provisions applicable to the Common Stock. All outstanding shares of
Common Stock are fully paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of this Offering, the Company will be
authorized to issue 2,000,000 shares of undesignated Preferred Stock. The
Board of Directors will have the authority to issue the undesignated
Preferred Stock in one or more series, to determine the rights, preferences,
privileges, and restrictions granted to or imposed upon any wholly unissued
series of undesignated Preferred Stock and to fix the number of shares
constituting any such series and the designations of such series, without any
further vote or action by the stockholders. The Board of Directors, without
stockholder approval, can issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of Common
Stock. The issuance of Preferred Stock may also have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has
no present plan to issue Preferred Stock.
In 1991, the Company issued 331,000 shares of Series A Preferred Stock in
connection with a private financing and 110,333 shares of Series B Preferred
Stock in connection with an acquisition. Upon the closing of this Offering,
each share of Preferred Stock outstanding automatically converts to one share
of Common Stock.
OUTSTANDING WARRANTS AND OPTIONS
There are 142,330 shares of Common Stock reserved for issuance upon the
exercise of outstanding common stock purchase warrants. Of such shares,
132,400 have been registered for sale under the Securities Act, although the
beneficial owners of such shares have entered into an agreement with the
Company and the Underwriters not to offer or sell any of such shares for a
period of 12 months following the date of this Prospectus, without the
written consent of the Representative. See "Underwriting." In addition, there
are 131,076 shares of Common Stock reserved for issuance under the Company's
1992 Plan.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Subject to certain exceptions, Section 203 prohibits
a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or unless the business combination is
approved in a prescribed manner.
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<PAGE>
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, 15% or
more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
2,366,523 shares of Common Stock (excluding 273,406 shares of Common Stock
issuable upon conversion of all outstanding options and warrants). With
respect to the outstanding warrants, 132,400 shares underlying such warrants
are subject to a registration statement which was filed by the Company with
respect to such shares. Notwithstanding the filing of such registration
statement, the holders thereof have agreed not to sell such shares for 12
months following the date of this Prospectus (the "Effective Date") without
the consent of the representative of the Underwriters. See "--Registration
Rights" and "Underwriting." Of the outstanding shares, the 1,000,000 shares
(and any shares sold if the Underwriter exercises its over-allotment option)
sold in this Offering will be freely tradeable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company.
The remaining 1,366,523 shares of Common Stock held by existing
stockholders are "restricted" shares under the Securities Act (the
"Restricted Shares"). Approximately 249,580 Restricted Shares will be
eligible for sale in the public market on the Effective Date pursuant to Rule
144(k), although the holders thereof have agreed not to sell such shares for
a period of 12 months following the Effective Date without the consent of the
Representative. Beginning 12 months after the Effective Date, upon the
expiration of 12-month lock-up agreements between existing stockholders of
the Company and the Representative, approximately 1,018,967 additional
Restricted Shares will become eligible for sale pursuant to Rule 144, subject
to certain volume and other resale restrictions.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Effective Date a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least two years (and, with
respect to non-affiliates of the Company, who has beneficially owned
Restricted Shares for at least three years) will be entitled to sell in any
three-month period up to the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 23,599 shares immediately after
this Offering assuming no exercise of the Underwriters' over-allotment
option) or (ii) the average weekly trading volume of the Company's Common
Stock in The Nasdaq Stock Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities
and Exchange Commission. Such sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and the availability
of current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned Restricted Shares for at least three years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
described above.
Following this Offering, an aggregate of 198,600 shares of Common Stock
will be subject to outstanding options or reserved for future issuance
pursuant to the Company's 1992 Plan. Within 90 days following the Effective
Date, the Company intends to file a Registration Statement on Form S-8 to
register such shares. Following the earlier of 90 days after the Effective
Date and the filing of the Form S-8, the shares of Common Stock issued under
the 1992 Plan will be eligible for sale in the public market upon vesting of
such shares, subject to contractual lock-up restrictions and, in the case of
affiliates, the Rule 144 volume limitations.
Prior to this Offering, there has been no prior public market for the
Common Stock and there is no assurance that a significant public market for
the Common Stock will develop or be sustained after this Offering. Sales of
substantial amounts of Common Stock in the public market could adversely
affect the market price of the Common Stock and could impair the Company's
future ability to raise capital through the sale of its equity securities.
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<PAGE>
REGISTRATION RIGHTS
The Company has registered on behalf of certain warrantholders 132,400
shares of Common Stock underlying outstanding warrants. Such shares are
subject to a registration statement which was filed by the Company with
respect to such shares. Notwithstanding, the filing of such registration
statement, the holders thereof have agreed not to sell such shares for 12
months following the Effective Date, without the consent of the
representative of the Underwriters, subject to the right of the
representative of the Underwriters to release them, in whole or part, from
such restriction. In addition, in connection with certain private financings
prior to this Offering, certain holders of the Company's Common Stock have
the right to include 555,056 shares of Common Stock in any registration
statement filed by the Company subsequent to the closing of this Offering
other than in connection with a registration statement on Form S-4, S-8 or
other comparable forms. The costs and expenses of such registration will be
paid for by the Company. The Company may in certain circumstances defer
inclusion of these shares in the registrations, and the underwriters have the
right, subject to certain limitations, to limit the number of shares included
in such registrations.
38
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Kaufman Bros., L.P. is acting as
the Representative (the "Representative"), have severally agreed, subject to
the terms and conditions contained in the Underwriting Agreement, to purchase
from the Company the number of shares of Common Stock set forth opposite
their names.
Underwriter Number of Shares
- ------------------- ----------------
Kaufman Bros., L.P.....................................
----------------
Total ................................................ 1,000,000
================
The Underwriting Agreement provides that the several Underwriters are
obligated to purchase all of the 1,000,000 shares of Common Stock offered by
the Underwriters hereby (other than shares which may be purchased under the
over-allotment option), if any are purchased. The Representative has advised
the Company that the Underwriters propose to offer the shares to the public
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow selected dealers a concession of
$ per share and that such dealers may reallow a concession of $ per
share to certain other dealers. After the public offering, the offering price
and the concessions may be changed by the Representative.
The Company has granted to the Underwriters an option, expiring at the
close of business on the 45th day after the date of the Underwriting
Agreement, to purchase up to 150,000 additional shares of Common Stock at the
public offering price less underwriting discounts and commissions, all as set
forth on the cover page of this Prospectus. The Underwriters may exercise the
option only to cover over-allotments, if any, in the sale of shares of Common
Stock in this Offering. To the extent that the Underwriters exercise the
option, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them as shown in the foregoing
table bears to the 1,000,000 shares of Common Stock offered hereby.
The Company has agreed to pay to the Representative, individually, and not
in its capacity as Representative, a non-accountable expense allowance of 2%
of the gross proceeds of this Offering, $180,000 if the Underwriters'
over-allotment option is not exercised, ($207,000 if the Underwriters'
over-allotment option is exercised in full), of which $25,000 has been paid
to date. If this Offering is not consummated, the Representative will be
entitled to be reimbursed for actual out-of-pocket expenses, on an
accountable basis only, up to $50,000, inclusive of the amount paid to date.
The Company has also agreed to pay all expenses in connection with
registering or qualifying the Common Stock offered hereby for sale under the
laws of the states in which the Common Stock is sold by the Underwriters) as
well as certain expenses associated with informational meetings.
The Company has agreed to sell to the Representative, or its designees,
warrants (the "Representative's Warrants") to purchase 100,000 shares of the
Company's Common Stock at an aggregate purchase price of $100. The exercise
price per Representative's Warrant, subject to anti-dilution adjustment, is
equal to 130% of the public offering price per share of Common Stock offered
hereby. The Representative's Warrants expire on the fifth anniversary of the
date hereof. The Representative's Warrants may not be transferred or
exercised for one year from the date of this Prospectus, except for transfers
to officers of the Representative or members of the underwriting or selling
group and/or their officers or partners, if any. The Representative's
Warrants become exercisable during the four-year period commencing one year
from the date of this Prospectus (the "Warrant Exercise Term"). During the
Warrant Exercise Term, the holders of the Underwriters' Warrants are given,
at nominal cost, the opportunity to profit from an increase in the market
price of the Company's Common Stock. The Company has granted the
Representative certain registration rights with respect to the
Representative's Warrants. All registration rights will terminate seven years
from the Effective Date.
39
<PAGE>
Except as set forth below, the Company, its officers and directors and
stockholders have agreed that they will not, directly or indirectly, offer,
sell, offer to sell, contract to sell, grant any option to purchase or
otherwise sell or dispose of (or announce any offer, sale, offer or sale,
contract of sale, grant any option to purchase or any other sale or
disposition) any shares of Common Stock or other capital stock of the Company
or any securities convertible into, or exercisable or exchangeable, for, any
shares of Common Stock or other capital stock of the Company for a period of
365 days after the Effective Date without the prior written consent of the
Representative, on behalf of the Underwriters. See "Shares Eligible for
Future Sale."
The public offering price of the Common Stock offered hereby will be
determined through negotiations between the Company and the Representative.
Among the factors to be considered in making such determination will be the
prevailing market condition, the Company's fiscal and operating history and
condition, the Company's prospects and the prospects of its industry, the
management of the Company, the market price of securities for companies in
businesses similar to that of the Company and the recent trading activity and
prices of shares of Common Stock on the Nasdaq SmallCap Market.
The Representative has advised the Company that sales of Common Stock to
discretionary accounts will not exceed 5% of the shares of Common Stock
offered hereby.
The Representative became registered as a broker-dealer in July 1995.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Schneck Weltman Hashmall & Mischel LLP, New York, New York.
Partners of the firm beneficially own in the aggregate 9,930 shares of the
Company's Common Stock. Certain legal matters in connection with this
Offering will be passed upon for the Underwriters by Fulbright & Jaworski
L.L.P.
EXPERTS
The financial statements of the Company as of October 31, 1995 and 1994,
and the related statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended October 31, 1995 have been
included in this Prospectus in reliance upon the report of Ernst & Young LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules to the Registration Statement. For further information with respect
to the Company and such Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this Prospectus concerning
the contents of any contract or any other document referred to are not
necessarily complete, and reference is made in each instance to the copy of
such contract or document filed as an exhibit to the Registration Statement.
Each such statement is qualified in all respects by such reference to such
exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Securities and Exchange
Commission's principal office in Washington, D.C., and copies of all or any
part thereof may be obtained from such office after payment of fees
prescribed by the Securities and Exchange Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
accountants, and quarterly reports for the first three fiscal quarters of
each fiscal year containing unaudited financial information. Prior to the
completion of this Offering, the Company will register the securities offered
hereby under Section 12(g) of the Securities Exchange Act of 1934, as
amended, and become subject to the reporting requirements of said Act.
Reports and other information filed by the Com
40
<PAGE>
pany with the Securities Exchange Commission may be examined at the
Commission at its principal office located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its Northeast Regional Office located at 7 World
Trade Center, New York, New York 10048. Copies may be obtained through the
principal office of the Commission upon payment of charges prescribed by the
Commission.
The Commission maintains a World Wide Web Site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Members of the Board and Stockholders
Index Stock Photography, Inc.
We have audited the accompanying balance sheets of Index Stock Photography,
Inc. (the "Company") as of October 31, 1994 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for the each
of the three years ended October 31, 1995. 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 the Company at October 31,
1994 and 1995, and the results of its operations and its cash flows for each
of the three years ended October 31, 1995 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
December 20, 1995
except for Notes 1 and 5, as to
which the date is May 31, 1996
F-1
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31 April 30
1994 1995 1996
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Accounts receivable, less allowance for doubtful accounts
$22,300 (1995 and 1994 and April 1996) ................ $ 310,220 $ 422,816 $ 422,329
Prepaid expenses and other ............................... 65,098 93,092 68,582
------------- ------------- -------------
Total current assets ....................................... 375,318 515,908 490,911
Photographic stock, at cost, less accumulated amortization of
$68,260 (1994), $105,010 (1995), and $130,763 (April 1996) . 93,408 100,170 158,284
Fixed assets, at cost, less accumulated depreciation and
amortization ............................................. 132,397 105,440 90,601
Intangible assets, less accumulated amortization ........... 66,468 32,831 33,791
Deposits ................................................... 12,462 20,018 24,096
------------- ------------- -------------
Total assets ............................................... $ 680,053 $ 774,367 $ 797,683
============= ============= =============
Liabilities and stockholders' equity
Current liabilities:
Cash--overdraft .......................................... $ 59,737 $ 52,058 $ 14,242
Notes Payable:
Stockholders .......................................... -- -- 300,000
Others ................................................ -- - 200,000
Loan payable--bank ....................................... 99,000 19,800 19,800
Advances from stockholder ................................ 30,000 187,000 --
Commissions payable ...................................... 92,544 114,834 112,724
Accounts payable ......................................... 86,516 113,289 111,126
------------- ------------- -------------
Total current liabilities .................................. 367,797 486,981 757,892
Loan payable--bank, less current portion ................... -- 72,600 62,700
Stockholders' equity (deficiency):
Preferred stock, $.01 par value, 2,000,000 shares authorized:
$2 Series A convertible preferred stock, 1,250,000 authorized;
500,000 issued and outstanding (liquidation preference
of $1,000,000); with potential stockholder put of $8.49
per share ........................................... 2,127,347 2,744,232 3,078,667
Series B convertible preferred stock, 166,667 authorized;
166,667 issued and outstanding; with potential stockholder
put of $2 per share ................................. 92,914 142,239 179,992
Common stock, $.0001 par value, 10,000,000 shares authorized,
918,570 (894,297 in 1995, 822,801 in 1994) issued and
outstanding ........................................... 82 89 92
Additional paid-in capital ............................... -- -- --
Accumulated deficit ...................................... (1,908,087) (2,671,774) (3,281,660)
------------- ------------- -------------
Total stockholders' equity (deficiency) .................... 312,256 214,786 (22,909)
------------- ------------- -------------
Total liabilities and stockholders' equity (deficiency) .... $ 680,053 $ 774,367 $ 797,683
============= ============= =============
</TABLE>
See accompanying notes.
F-2
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
Year ended October 31 April 30
1993 1994 1995 1995 1996
------------- ------------- --------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Fee revenues ....................... $1,331,997 $1,717,644 $ 2,215,314 $ 993,306 $1,242,305
Other revenues ..................... 54,340 14,250 -- -- --
------------- ------------- --------------- ------------- -------------
1,386,337 1,731,894 2,215,314 993,306 1,242,305
Commission expense ................. 410,031 512,281 704,496 291,400 418,789
Selling, general and administrative
expenses .......................... 1,066,374 1,070,867 1,488,313 743,169 897,159
Research and development expenses .. 254,861 388,395 424,129 198,259 260,396
------------- ------------- --------------- ------------- -------------
Income (loss) from operations ...... (344,929) (239,649) (401,624) (239,522) (334,039)
Other income (expense):
Interest income .................. 1,158 633 18 9 9
Interest expense ................. (2,268) (7,501) (10,683) (5,254) (5,197)
Other ............................ (12,247) (8,564) (8,659) (685) (17,292)
------------- ------------- --------------- ------------- -------------
Net income (loss) .................. (358,286) (255,081) (420,948) (245,452) (356,519)
Accretion of Series A and Series B
preferred stock .................. (391,758) (510,433) (666,210) (333,105) (372,188)
------------- ------------- --------------- ------------- -------------
Net income (loss) attributable to common
shareholders ..................... $ (750,044) $ (765,514 $(1,087,158) $ (578,557) $ (728,707)
============= ============= =============== ============= =============
Net income (loss) per common share . $ (.54) $ (.52) $ (.72) $ (.39) $ (.47)
Weighted average number of shares used
in calculation of earnings per share 1,392,321 1,478,302 1,520,220 1,484,260 1,549,798
</TABLE>
See accompanying notes.
F-3
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Additional
Stock Common Paid-in Accumulated
Series A Series B Stock Capital Deficit Total
------------ ---------- -------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1993 ................ $1,649,134 $ 60,694 $82 $ -- $(1,142,573) $ 567,337
Net loss for 1994 ..................... -- -- -- -- (255,081) (255,081)
Accretion of preferred stock .......... 478,213 32,220 -- -- (510,433) --
------------ ---------- -------- ------------ -------------- -----------
Balance at October 31, 1994 ................ 2,127,347 92,914 82 -- (1,908,087) 312,256
67,524 shares of common stock issued through
a private placement in April 1995 .. -- -- 7 305,471 -- 305,478
3,972 shares of common stock issued for
services in April 1995 ............. -- -- -- 18,000 -- 18,000
Net loss for 1995 ..................... -- -- -- -- (420,948) (420,948)
Accretion of preferred stock .......... 616,885 49,325 -- (323,471) (342,739) --
------------ ---------- -------- ------------ -------------- -----------
Balance at October 31, 1995 ................ 2,744,232 142,239 89 -- (2,671,774) 214,786
4,413 shares of common stock issued in
conjunction with asset acquisition in
December 1995 ...................... -- -- 1 19,999 -- 20,000
19,860 shares of common stock issued through
a private placement in January 1996 . -- -- 2 98,822 -- 98,824
Net loss for the six months ended April 30,
1996 (unaudited) ................... -- -- -- -- (356,519) (356,519)
Accretion of preferred stock .......... 334,435 37,753 -- (118,821) (253,367) --
------------ ---------- -------- ------------ -------------- -----------
Balance at April 30, 1996 (unaudited) ...... $3,078,667 $179,992 $92 $ -- $(3,281,660) $ (22,909)
============ ========== ======== ============ ============== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
Year ended October 31 April 30
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss ....................................... $(358,286) $(255,081) $(420,948) $(245,452) $(356,519)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ............. 83,911 101,682 114,625 55,022 68,488
Services rendered in exchange for issuance of
common stock ............................ -- -- 18,000 18,000 --
Changes in operating assets and liabilities:
Accounts receivable .................. 45,349 (42,261) (112,596) (8,842) 487
Other receivables .................... (133,874) 133,874 -- -- --
Prepaid expenses and other ........... (3,736) (38,806) (27,994) (63,238) 24,510
Commissions payable .................. (13,945) 28,126 22,290 (270) (2,110)
Accounts payable ..................... 107,180 (57,040) 26,773 (16,456) (2,163)
------------------------------------------------ ------------ ------------ ------------ ------------
Net cash used in operating activities .......... (273,401) (129,506) (379,850) (261,236) (267,307)
Investing activities
Purchase of photographic stock ................. (40,755) (20,788) (43,512) (31,205) (83,867)
Purchase of fixed assets ....................... (58,077) (40,198) (17,281) (9,028) (8,856)
Deposits ....................................... (3,795) (4,137) (7,556) (1,703) (4,078)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities .......... (102,627) (65,123) (68,349) (41,936) (96,801)
Financing activities
Cash--overdraft ................................ -- 59,737 (7,679) (59,737) (37,816)
Advances from stockholder ...................... -- 30,000 157,000 142,000 (187,000)
Payments of loan payable--bank ................. -- -- (6,600) -- (9,900)
Proceeds from loan payable--bank ............... 95,000 4,000 -- -- --
Proceeds from notes payable .................... -- -- -- -- 500,000
Payments of debt ............................... (11,486) -- -- -- --
Proceeds from issuance of common stock, net .... 374,567 -- 305,478 305,478 98,824
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities ...... 458,081 93,737 448,199 387,741 364,108
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 82,053 (100,892) -- 84,569 --
Cash and cash equivalents at beginning of year . 18,839 100,892 -- -- --
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of year ....... $ 100,892 $ -- $ -- $ 84,569 $ --
============ ============ ============ ============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest ..................................... $ 2,082 $ 7,501 $ 10,683 $ 5,254 $ 5,197
============ ============ ============ ============ ============
</TABLE>
In conjunction with an acquisition in December 1995, Index acquired certain
intangible assets in exchange for 4,413 shares of common stock valued at
$20,000.
See accompanying notes.
F-5
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
Notes to Financial Statements
(UNAUDITED) WITH RESPECT TO THE SIX MONTH PERIODS
ENDED APRIL 30, 1995 AND 1996
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
ImageNation, Inc. was incorporated on April 23, 1991, in the State of
Delaware for the purpose of acquiring and modernizing photography agencies. A
stock photography agency receives photographs from professional photographers
and licenses the use of these photographs to customers in the advertising,
design, corporate, and editorial markets worldwide.
On November 1, 1991, ImageNation, Inc. acquired certain assets and
liabilities of Index Stock International, Inc., a New York corporation, for
cash of $135,000, a $75,000 noncompetition agreement and 166,667 shares of
Series B convertible preferred stock (see Note 5), and incurred acquisition
costs of approximately $49,000. Shortly thereafter, ImageNation, Inc. changed
its name to Index Stock Photography, Inc. ("Index"). Prior to November 1,
1991, Index did not have operations.
On March 23, 1992, Index acquired certain assets and liabilities of a
stock photography agency, Telephoto, Inc., a New York corporation, for cash
of $25,000 and 22,133 shares of common stock. Index also obtained the right
to the name "Telephoto."
On December 16, 1995, Index acquired certain assets and liabilities of a
stock photography agency, ProFiles West, Inc., a Colorado corporation, for
cash of $35,000 and 4,413 shares of common stock. Index also obtained the
right to the name "ProFiles West."
These acquisitions were accounted for by the purchase method of accounting
and, accordingly, the purchase prices have been allocated to the assets
acquired and the liabilities assumed based on their estimated fair value at
the date of acquisition. The excess of purchase price over the estimated fair
value of the net assets acquired has been recorded as goodwill, and is being
amortized on the straight-line basis over five years. The operating results
of these acquisitions are included in Index's results of operations from the
dates of acquisition.
On May 31, 1996, Index effected a reverse stock split on common shares in
the ratio of .662 to 1. All references in the financial statements to
weighted average shares outstanding and related prices, per share amounts,
and stock option plan data reflect the split.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those
estimates.
INTERIM FINANCIAL INFORMATION
The unaudited interim information as of April 30, 1996 and for the six
months ended April 30, 1995 and 1996 has been prepared on the same basis as
the annual financial statements and, in the opinion of the Index's
management, reflects normal recurring adjustments necessary for a fair
presentation of the information for the periods presented. Operating results
for any quarter are not necessarily indicative of results for any future
periods.
CASH EQUIVALENTS
Index considers all highly liquid financial instruments with a maturity of
three months or less when purchased to be cash equivalents.
F-6
<PAGE>
Index Stock Photography, Inc.
Notes to Financial Statements - (Continued)
1. Significant Accounting Policies - (Continued)
DEPRECIATION AND AMORTIZATION
Depreciation of computer equipment, software, office equipment, and
furniture is computed on the straight- line method over the estimated useful
lives (generally five to seven years) of the related assets. Amortization of
leasehold improvements is computed on the straight-line method over the
lesser of the terms of the related leases or their estimated useful lives.
Costs related to the (i) production of certain original photographic stock
and (ii) duplication of images are capitalized and amortized on the
straight-line basis over five years.
Goodwill, organization costs and the noncompetition agreements are being
amortized on the straight-line basis over three to five years.
REVENUE
Index derives revenue from (i) licensing photographs (domestic revenue),
and (ii) licensing photographs to foreign agents who, in turn, license the
photographs to customers in certain foreign markets (foreign revenue).
Domestic and foreign revenue is recognized upon receipt of notification
from customers of the intended use of the photographs.
RESEARCH AND DEVELOPMENT
Index is developing computer software to automate finding, storing and
distributing images. The costs incurred during the research and development
phase for the years ended October 31, 1993, 1994 and 1995 and the six months
ended April 1995 and 1996 were approximately $255,000, $388,000, $424,000,
$198,000 and $260,000, respectively, and such costs were expensed as
incurred. At the end of the research and development phase, certain costs may
begin to be capitalized in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed." Research and development planned for the year
ending October 31, 1996 is related to testing and enhancement of existing
technology.
EXPENSE REIMBURSEMENTS
For the years ended October 31, 1993, 1994 and 1995, and the six months
ended April 30, 1995 and 1996, approximately $169,722, $0, $211,500, $150,000
and $14,000, respectively, of costs were incurred relating to catalogues and
duplicating photographs billed to foreign agents. The billings to the foreign
agents are recorded as credits against the related production costs which are
included in selling expense. There was no catalogue production during the
year ended October 31, 1994.
ADVERTISING COSTS
Index expenses the cost of advertising, including direct-response
advertising, as incurred. For the years ended October 31, 1993, 1994 and 1995
and the six months ended April 1995 and 1996, advertising expense totaled
$35,000, $35,000, $158,000, $24,000 and $71,000, respectively.
INCOME TAXES
Index accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards No. 109 ("FAS 109"),
"Accounting for Income Taxes."
In accordance with FAS 109, Index's deferred tax asset of approximately
$246,000, $327,000, $457,000, at October 31, 1993, 1994, 1995, respectively,
arising primarily from net operating loss carryforwards available, has been
reduced by valuation allowances of the same amounts. The valuation allowances
increased $106,000, $81,000, $130,000 during the years ended October 31,
1993, 1994 and 1995, respectively.
F-7
<PAGE>
Index Stock Photography, Inc.
Notes to Financial Statements - (Continued)
1. Significant Accounting Policies - (Continued)
As of October 31, 1995, Index has net operating loss carryforwards of
approximately $1,374,000 for income tax purposes which will expire commencing
in year 2006. In addition, Index has research activity credit carryforwards
of approximately $70,000 that will expire commencing in year 2007. The net
operating loss and research activity credit carryforwards may be limited by
the change in ownership rules pursuant to Sections 382 and 383, respectively,
of the Internal Revenue Code.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal
years beginning after December 31, 1995 and prescribes accounting and
reporting standards for all stock- based compensation plans, including
employee stock options, restricted stock, employee stock purchase plans and
stock appreciation rights.
SFAS 123 requires compensation expense to be recorded (I) using the new
fair value method or (ii) using existing accounting rules prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations with pro forma disclosure
of what net income and earnings per share would have been had the Company
adopted the new fair value method. The Company intends to continue to account
for its stock-based compensation plans in accordance with the provisions of
APB 25.
NET INCOME (LOSS) PER SHARE
Except as noted below, net income (loss) per common share is computed
using the weighted average number of common shares outstanding and dilutive
common stock equivalent shares, if any, from stock options during each year,
retroactively adjusted to give effect to the reverse stock split. Pursuant to
the Securities and Exchange Commission Staff Accounting Bulletins, common
stock and common stock equivalents issued by Index at prices below the public
offering price during the twelve-month period prior to Index's initial public
offering have been included in the calculation as if they were outstanding
for all periods presented.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Index to concentrations of
credit risk consist primarily of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers comprising Index's customer base. Management regularly monitors the
creditworthiness of its customer and believes that it has adequately provided
for any exposure to potential credit losses.
2. FIXED ASSETS
Fixed assets, at cost, consist of the following:
<TABLE>
<CAPTION>
October 31 April 30
1994 1995 1996
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Computer equipment and software ............... $173,956 $185,932 $191,713
Office equipment and furniture ................ 35,097 37,812 40,887
Leasehold improvements ........................ 9,540 12,130 12,130
----------- ----------- -----------
218,593 235,874 244,730
Less accumulated depreciation and amortization . 86,196 130,434 154,129
----------- ----------- -----------
$132,397 $105,440 $ 90,601
=========== =========== ===========
</TABLE>
F-8
<PAGE>
Index Stock Photography, Inc.
Notes to Financial Statements - (Continued)
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
October 31 April 30
1994 1995 1996
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Noncompetition agreement ..... $ 75,000 $ 75,000 $ 95,000
Goodwill ..................... 83,565 83,565 83,565
Organization costs ........... 10,852 10,852 10,852
---------- ---------- -----------
169,417 169,417 189,417
Less accumulated amortization . 102,949 136,586 155,626
---------- ---------- -----------
$ 66,468 $ 32,831 $ 33,791
========== ========== ===========
</TABLE>
4. LOAN PAYABLE--BANK
In October 1993, Index established a $99,000 line of credit with Citibank.
Effective July 1995, Index converted the $99,000 outstanding loan balance
under a line of credit with Citibank into a five-year term loan. The
outstanding balance at April 30, 1996 amounted to $82,500 and is repayable in
equal monthly installments of $1,650. The interest is at the bank's Base Rate
(as defined) plus 1% per annum with interest payable monthly (9.75% at
October 31, 1995 and 9.25% at April 30, 1996). All of Index's assets are
pledged as collateral against the term loan. The term loan is guaranteed by a
majority shareholder.
5. NOTES PAYABLE
On April 1, 1996, Index borrowed $500,000 from four stockholders and two
outside investors, evidenced by notes payable (the "Notes") with interest at
10% per annum payable semi-annually commencing October 1, 1996. The Notes
mature on the earlier of a debt or equity financing of Index, of at least
$3,000,000, or March 31, 1997. Simultaneously with the issuance of the Notes,
the noteholders received 132,400 common stock purchase warrants with an
exercise price of $6.04 per share. The warrants are exercisable at anytime
prior to March 31, 2001.
6. PREFERRED AND COMMON STOCK
In October 1991, Index issued 500,000 shares of $2.00 Series A Convertible
Preferred Stock ("Series A Preferred Stock") for $1,000,000.
Each share of Series A Preferred Stock is convertible into .662 of one
share of common stock at any time at the option of the holder and
automatically upon the successful completion of a public offering of its
securities. Commencing after the sixth anniversary of the issuance of the
Series A Preferred Stock (October 1997), holders thereof have the right to
require Index to repurchase such shares at $8.49 per share ($4,245,000 in the
aggregate), payable in three consecutive annual installments of $2.83 per
share, if Index has not effected a public offering of its securities. These
shares have a liquidation preference of $2.00 per share ($1,000,000 in the
aggregate), whether voluntary or involuntary liquidation. Each share is
entitled to a cumulative cash dividend of $.30 per annum commencing with the
fifth anniversary of the issuance of such shares (October 1997) and $.40 per
annum commencing with the seventh anniversary (October 1998). Series A
Preferred Stock does not have any voting rights except for those provided for
by law.
Each share of Series B Convertible Preferred Stock, independently valued
at time of issuance at approximately $.155, is convertible into .662 of one
share of common stock at any time at the option of the holder. Effective
October 31, 1997, holders of these shares have the right to require Index to
repurchase such shares at approximately $2.00 per share ($333,334 in the
aggregate) in two equal installments. If such right of redemption is not
exercised by the holders, Index has the right to purchase such shares at
$12.00 per share ($2,000,004 in the aggregate) starting October 31, 1997.
Series B Convertible Preferred Stock does not have any voting rights except
for those provided by law. Series B Convertible Preferred Stock shall not be
entitled to receive cash dividends.
F-9
<PAGE>
Index Stock Photography, Inc.
Notes to Financial Statements - (Continued)
6. Preferred and Common Stock - (Continued)
At October 31, 1995, Index has reserved 441,334 shares of authorized
common stock for the conversion of the preferred stock. The carrying values
of the preferred stock have been increased by periodic accretions, based on
the interest method, of the difference between the fair value at the dates of
issuance and the redemption values until the redemption dates at which time
both amounts shall be equivalent.
7. STOCK OPTIONS AND WARRANTS
In fiscal 1992, Index granted an employee options to purchase 22,517
shares of common stock in conjunction with an employment agreement. In May
1993, these options were exercised for $500. In fiscal 1992, Index adopted
the "1992 Non-Qualified Stock Option Plan" whereby officers, directors,
advisory directors or consultants can be granted options to purchase up to
198,600 reserved shares of common stock of Index. The option price per share
shall not be less than the fair market value, as determined by management, on
the date the option is granted. The exercise price and the option period vary
for each option.
In fiscal 1992, Index granted stock options to purchase 22,243 shares of
common stock at prices ranging from $.88 to $1.51.
In fiscal 1993, Index granted stock options to purchase 9,268 shares of
common stock at $2.27 per share. Options to purchase 7,745 shares were
canceled.
In fiscal 1994, Index granted stock options to purchase 16,681 shares of
common stock at $2.27 per share. Options to purchase 3,773 shares were
canceled.
In fiscal 1995, Index granted stock options to purchase 15,424 shares of
common stock at $2.27 per share. Options to purchase 3,111 shares were
canceled.
In first quarter 1996, Index granted stock options to purchase 81,889
shares of common stock at $4.53 per share.
As of April 30, 1996, an aggregate of 131,076 options were outstanding
(23,766, 36,873 and 37,238 at October 31, 1993, 1994 and 1995, respectively)
of which 90,131 are exercisable at prices ranging from $.88 to $4.53.
In January 1996, Index sold 19,860 shares of common stock and, in
conjunction therewith, issued warrants to purchase 9,930 shares of common
stock at an exercise price of $4.98 per share, for an aggregate price of
$99,000. The warrants are exercisable at anytime prior to January 24, 2001.
8. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is calculated based on (i) net income
(loss) attributable to common shareholders after deducting the accretion of
Series A and Series B preferred stock, (ii) the preferred stock being treated
as if converted to common stock and outstanding since the date of issuance of
the preferred stock and included in the weighted average number of shares
outstanding, and (iii) the common stock, stock options and stock warrants
issued between May 31, 1995 and May 31, 1996, which were at prices below the
offerers price, being treated as outstanding since inception and included in
the weighted average number of shares outstanding.
F-10
<PAGE>
Index Stock Photography, Inc.
Notes to Financial Statements - (Continued)
8. Net Income (Loss) Per Common Share - (Continued)
Historical earnings per common share which did not reflect items (i) and
(iii) above was as follows:
Year ended October 31, Six months
- --------------------------------------------------- April 30
1993 1994 1995 1996
------- ------- ------- ------------
(.30) (.20) (.32) (.26)
9. COMMITMENTS
LEASES
Index leases office space and computer equipment under noncancellable
operating leases. Future base rental payments as of October 31, 1995 are as
follows:
Fiscal year:
1996 ........................................... $137,000
1997 ........................................... 73,000
1998 ........................................... 40,000
1999 ........................................... 18,000
2000 ........................................... 8,000
-----------
$276,000
===========
Index is also responsible for rent escalations based upon increases in
certain building operating costs. Office rent expense for the years ended
October 31, 1993, 1994 and 1995 was approximately $70,000, $70,000 and
$78,000, respectively, and $38,000 and $40,000 for the six months ended April
30, 1995 and 1996, respectively.
10. RETIREMENT PLAN
Index provides retirement benefits for its employees under a defined
contribution plan. All employees are eligible to make voluntary contributions
to the Plan upon completion of three months of service. Index stopped
matching contributions to the Plan in April 1994. Employees become fully
vested in Index's matching contribution after three years of service. Index's
contributions for the years ended October 31, 1993, 1994, and 1995 totaled
approximately $9,000, $5,000 and $0, respectively.
11. RELATED PARTY TRANSACTIONS
For the years ended October 31, 1993, 1994 and 1995, Index incurred
commission expenses of approximately $200,000, $89,000 and $200,000,
respectively, and $91,000 and $74,460 for the six months ended April 30, 1995
and 1996, respectively, for images owned by shareholders/photographers who
are not employees of the Company.
12. CUSTOMER AND GEOGRAPHICAL AREA INFORMATION
No customer accounted for more than 10% of revenues during the years ended
October 31, 1993, 1994 and 1995.
Through catalog distributions, internet access and foreign agents Index
also provides its images to end users outside the United States. Revenues
from customers outside the United States represented approximately 35%, 35%
and 39% of total revenues during the years ended October 31, 1993, 1994 and
1995, respectively. No single geographic area accounted for more than 10% of
total revenues.
F-11
<PAGE>
=============================================================================
No dealer, salesman or any 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 on as having been authorized by the Company. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy, by
any person in any jurisdiction in which it is unlawful for such person to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any offer, solicitation or sale made hereunder, shall under any circumstances
create an implication that the information herein is correct as of any time
subsequent to the date of the Prospectus.
------
TABLE OF CONTENTS
Page
--------
Reports to Shareholders ................... 0
Prospectus Summary ........................ 3
Risk Factors .............................. 6
Use of Proceeds ........................... 11
Divided Policy ............................ 12
Capitalization ............................ 12
Dilution .................................. 13
Selected Financial Information ............ 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 15
Business .................................. 19
Management ................................ 30
Certain Transactions ...................... 34
Principal Stockholders .................... 35
Description of Capital Stock .............. 36
Shares Eligible for Future Sale ........... 37
Underwriting .............................. 38
Legal Matters ............................. 39
Experts ................................... 39
Additional Information .................... 40
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 the distribution thereof, 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
allotment or subscriptions.
==============================================================================
<PAGE>
==============================================================================
1,000,000 SHARES
COMMON STOCK
INDEX STOCK
PHOTOGRAPHY, INC.
---------------------
P R O S P E C T U S
---------------------
KAUFMAN BROS., L.P.
JUNE , 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Statement Filing Fee ......... $ 3,965.20
Boston Stock Exchange Filing Fee .............. 15,000.00
NASD Filing Fee ............................... 1,606.55
NASDAQ Filing Fee ............................. 8,500.00
Underwriter's Non-accountable Expense Allowance. 200,000.00
Legal Fees and Expenses* ...................... 125,000.00
Accounting Fees and Expenses* ................. 85,000.00
Blue Sky Fees and Expenses* ................... 30,000.00
Printing ...................................... 60,000.00
Director and Officer Liability Insurance ...... 100,000.00
Transfer Agent ................................ 5,000.00
Miscellaneous* ................................ 20,928.25
------------
Total ....................................... $655,000.00
============
</TABLE>
- ------
* Indicates expenses that have been estimated for the purpose of filing.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware. As permitted by Delaware law, the Company's Certificate of
Incorporation contains an article limiting the personal liability of
directors. The Certificate of Incorporation provides that a director of the
Company shall not be personally liable for any damages from any breach of
fiduciary duty as a director, except for liability based on a judgment or
other final adjudication adverse to him establishing that his acts or
omissions were committed in bad faith, or the result of active or deliberate
dishonesty and were material to the cause of action so adjudicated, or that
he personally gained a financial profit or other advantage to which he was
not legally entitled.
In accordance with Section of the Underwriting Agreement, directors and
officers of the Company may under certain circumstances be entitled to
indemnification from the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
There have been no issuances of the registrant's securities within the
past three years, except for the following:
In May 1993, the Company sold for $500, 22,516 shares upon the exercise of
a non-qualified option granted to an employee of the Company.
In July 1993, the Company sold 112,842 shares of its Common Stock to 4
persons at a price per share of $3.32.
In April 1995, the Company sold 67,524 shares of its Common Stock to 10
persons at a price per share of $4.53.
In December 1995, the Company issued 4,412 common shares to one person in
connection with the purchase of certain assets of ProFiles West, a photo
stock agency. The individual was the sole proprietor of the acquired
business.
II-1
<PAGE>
In January 1996, the Company sold to an existing stockholder 19,860 shares
and a warrant to purchase 9,930 shares for an aggregate purchase price of
$99,000. The warrants are exercisable at $4.98 per share.
In April 1996, the Company issued to 6 persons in the aggregate $500,000
principal amount of 10% notes and warrants to purchase in the aggregate
132,400 shares of Common Stock exercisable at a price per share of $6.04.
In May 1996, the Company issued 6,620 common shares to one person as
consideration for certain agreements made by the Registrant and the
individual involving noncompetition and nonsolicitation. The individual was
the sole proprietor of the acquired business.
The foregoing transactions were exempt from registration pursuant to
section 4(2) of the Securities Act of 1933. All share amounts set forth above
have been adjusted to reflect a reverse split of the Company's Common Stock
effected in May 1996.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
16A. EXHIBITS
<TABLE>
<CAPTION>
Nos. Description of Exhibit
---- ----------------------
<S> <C>
1a Underwriting Agreement*
1b Form of Selected Dealers Agreement*
3a Restated Certificate of Incorporation
3b By-laws, as amended
4a Form of Common Stock Certificate*
4b Form of Warrant expiring January 24, 1999
4c Form of Warrant expiring March 31, 2001
5a Opinion of Schneck Weltman Hashmall & Mischel LLP*
10a Employment Agreement by and between Index Stock Photography Inc. and Bahar Gidwani dated as of
July 1, 1996*
10b Stock Option Plan, as amended
10c Cupertino National Bank Credit Agreement*
10d Lease for 126 Fifth Avenue, New York, New York 10011*
10e Lease for 6500 Wilshire Blvd., Los Angeles, CA 90048*
10f Microsoft Corporation Nondisclosure Agreement (Pre-Release Product-General) with Registrant
10g Photodisc, Inc. & Index Stock Photography Inc. Master Licensing/Distribution Agreement dated
November 1993
10r Form of Registration Rights Agreement
10s Lease for 22 West 19th Street, New York, NY.*
10r E-Data License Agreement*
24a Consent of Ernst & Young LLP
24b Consent of Schneck Weltman Hashmall & Mischel LLP
(reference is made to Exhibit 5)
27 Financial Data Schedule
</TABLE>
- ------
* To be filed by amendment
16B. FINANCIAL STATEMENT SCHEDULES
NONE
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
A. CERTIFICATES
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post- effective amendment filed as part of this
Registration Statement shall be deemed a new registration statement
relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of securities being registered which remain unsold at the termination
of the offering hereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officer and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on June 28, 1996.
INDEX STOCK PHOTOGRAPHY, INC.
By: /s/ Bahar Gidwani
-----------------------------------
Bahar Gidwani, President,
Chief Executive Officer,
Chairperson of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
------------------------- ---------------------------------- ----------------
<S> <C> <C>
/s/ Bahar Gidwani Chief Executive Officer, and June 28, 1996
- -------------------------- Chairperson of the Board of
Bahar Gidwani Directors
/s/ Kent Lawson Director June 28, 1996
- --------------------------
Kent Lawson
/s/ Arthur M. Schneck Director June 28, 1996
- --------------------------
Arthur M. Schneck
/s/ Susan Fournier Director June 28, 1996
- --------------------------
Susan Fournier
/s/ James D. Pyden Chief Financial Officer June 28, 1996
- -------------------------- (Principal Financial Officer)
James D. Pyden
</TABLE>
II-4
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
INDEX STOCK PHOTOGRAPHY, INC.
ADOPTED IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 245 OF THE DELAWARE GENERAL CORPORATION LAW
Index Stock Photography, Inc., a Delaware corporation (the
"Corporation") desiring to restate its Certificate of Incorporation pursuant to
the provisions of Section 245 of the Delaware General Corporation Law, hereby
certifies that the Corporation was incorporated in Delaware on April 23, 1991
under the name ImageNation, Inc. and changed its name to Index Stock
Photography, Inc. by a certificate of amendment filed on November 4, 1991. This
restated certificate of incorporation was adopted by the board of directors and
approved by stockholders of the Corporation in accordance with the provisions of
Sections 242 and 245 of the Delaware General Corporation Law. This restated
certificate of incorporation amends the certificate of incorporation to increase
the number of shares of common stock authorized to be issued by the Corporation
from 5,000,000 shares of common stock, $.0001 par value per share, to 10,000,000
shares of common stock, $.0001 par value per share, is filed to reflect adoption
by the board of directors and approval by stockholders of a resolution proposing
and declaring advisable a reverse stock split of the Corporation's issued and
outstanding shares of common stock, on a .662 share-for-one share basis, and
restates and integrates amendments heretofore adopted. The Certificate of
Incorporation, including the foregoing amendments is restated as follows:
FIRST: The name of the Corporation is Index Stock Photography, Inc.
SECOND: The registered office of the Corporation is to be located at 9
East Loockerman Street, in the City of Dover, in the County of Kent, in the
State of Delaware. The name of the registered agent at that address is the
National Corporate Research, Ltd.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is twelve million (12,000,000) shares of which ten
million (10,000,000) shares shall be shares of Common Stock, $.0001 par value
per share ("Common Stock"), and two million (2,000,000) shares shall be shares
of Preferred Stock, $.01 par value per share. Of the Preferred Stock authorized
hereby, there is established a Series A Preferred Stock and Series B Preferred
Stock having the designations, preferences, rights and limitations as set forth
below.
1
<PAGE>
Series A Preferred Stock.
1. Designation; Number of Shares; Stated Value.
The designation of said series of the Preferred Stock shall be $2.00
Series A Convertible Preferred Stock (the "Series A Preferred Stock"). The
number of shares of Series A Preferred Stock shall be 500,000. The liquidation
value of the Series A Preferred Stock shall be $2.00 per share, together with
any accrued and unpaid dividends if there is a sale of substantially all of the
stock or assets of the Company in a non-public transaction or liquidation of the
Company. The shares of Series A Preferred Stock shall be issued as full shares
and shall have a par value of $.01 per share.
2. Conversion.
(a) Each share of Series A Preferred Stock is convertible into
one share of Common Stock at any time at the option of the holder and
automatically upon the successful completion by the Corporation of a
public offering of its securities which has been made pursuant to a
registration statement or a Notification under Regulation A filed with
the Securities and Exchange Commission under the Securities Act of
1933, as amended ("Public Offering").
(b) The conversion rate shall be subject to adjustment as
follows:
(i) In case the Corporation shall (A) pay a dividend
on its Common Stock in shares of its Common Stock, (B)
subdivide its outstanding shares of Common Stock or (C)
combine its outstanding shares of Common Stock into a smaller
number of shares, the conversion rate in effect at the time of
such dividend, subdivision, or combination shall be
proportionately adjusted so that the holder of the Series A
Preferred Stock surrendered for conversion after such time
shall be entitled to receive the number and kind of shares
which he would have owned or have been entitled to receive had
such Series A Preferred Stock been converted immediately prior
to such time. Such adjustment shall be made successively
whenever any event listed above shall occur.
2
<PAGE>
(ii) In case of any consolidation of the Corporation
into, or merger of the Corporation with or into, any other
corporation, or in case of any sale or transfer of all or
substantially all of the assets of the Corporation, or in case
of any reclassification of its shares of Common Stock, the
holder of each share of Series A Preferred Stock then
outstanding shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other
securities, cash and other property receivable upon such
consolidation, merger, sale, transfer or reclassification by a
holder of the number of shares of Common Stock of the
Corporation into which such share of Series A Preferred Stock
might have been converted immediately prior to such
consolidation, merger, sale, transfer or reclassification. In
any such event, effective provision shall be made in the
articles or certificate of incorporation of the resulting or
surviving corporation or other corporation issuing or
delivering such shares, other securities cash or other
property or otherwise so that the provisions set forth herein
for the protection of the conversion rights of the Series A
Preferred Stock shall thereafter be applicable, as nearly as
reasonably may be, to any such other shares of stock and other
securities, cash and other property deliverable upon
conversion of the Series A Preferred Stock remaining
outstanding or other convertible stock or securities received
by the holders in place thereof; and any such resulting or
surviving corporation or other corporation issuing or
delivering such shares, other securities, cash or other
property shall expressly assume the obligation to deliver,
upon the exercise of the conversion privilege, such shares,
securities, cash or other property as the holders of the
Series A Preferred Stock remaining outstanding, or other
convertible stock or securities received by the holders in
place thereof, shall be entitled to receive pursuant to the
provisions hereof and to make provision for the protection of
the conversion right as above provided. In case shares,
securities, cash or other property other than Common Stock
shall be issuable or deliverable upon conversion as aforesaid,
then all references to Common Stock in this paragraph 2(b)
shall be deemed to apply, so far as provided and as nearly as
is reasonable, to any such shares, other securities, cash or
other property.
(iii) No fractional interests in Common Stock shall
be issued upon conversion of shares of Series A Preferred
Stock. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any share of
Series A Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount
equal to the same fraction of the public offering price per
share of Common Stock or issue an additional share of Common
Stock by rounding the fractional interest to the nearest whole
share.
(iv) In the event that at any time, as a result of
any adjustment made pursuant to this paragraph 2(b), the
holder of any share of Series A Preferred Stock thereafter
surrendered for conversion shall become entitled to receive
any shares of the Corporation other than shares of its Common
Stock, the number of such other shares so receivable upon
conversion of any share of Series A Preferred Stock shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provision
with respect to the Common Stock contained in subdivision (i),
above, with respect to the Common Stock.
3
<PAGE>
(v) Whenever any adjustment is required in the number
of shares into which each share of Series A Preferred Stock is
convertible, the Corporation shall forthwith cause to be
mailed to the holders of record of the Series A Preferred
Stock a copy of a statement describing in reasonable detail
the method of calculation used in the adjustment.
(c) Upon any conversion of shares of Series A Preferred Stock,
the shares so converted shall have the status of authorized and
unissued shares of Preferred Stock, unclassified as to series, and the
number of shares of Preferred Stock which the Corporation shall have
authority to issue shall not be decreased by the conversion of shares
of Series A Preferred Stock. The Corporation shall at times reserve and
keep available, out of its authorized and unissued stock or stock held
as treasury stock, solely for the purpose of effecting the conversion
of the Series A Preferred Stock, such number of shares of its Common
Stock as shall from time to time be sufficient to effect the conversion
of all shares of Series A Preferred Stock form time to time
outstanding. For the purpose of this paragraph 2(c), the full number of
shares of Common Stock issuable upon the conversion of all outstanding
shares of Series A Preferred Stock shall be computed as if at the time
of computation of such number of shares of Common Stock all outstanding
shares of Series A Preferred Stock were held by a single holder. The
Corporation shall form time to time, in accordance with the laws of the
State of Delaware, increase the authorized number of shares of its
Common Stock if at any time the number of shares of its Common Stock
not outstanding shall not be sufficient to permit the conversion of all
the then outstanding Series A Preferred Stock.
(d) The Corporation will pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series A Preferred Stock pursuant hereto.
The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue or
delivery of Common Stock in the name other than that in which the
Series A Preferred Stock so converted was registered, and no such issue
or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of such tax, or has
established, to the satisfaction of the Corporation, that such tax has
been paid.
(e) Before taking any action which would cause an adjustment
reducing the conversion rate such that the conversion price would be
below the then par value of the Common Stock, the Corporation will take
any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue
fully paid and nonassessable shares of Common Stock at the conversion
rate as so adjusted.
3. Number of Shares.
4
<PAGE>
The Board of Directors reserves the right, by subsequent amendment of
this resolution, from time to time to decrease the number of shares which
constitute the Series A Preferred Stock (but not below the number of shares
thereof then outstanding) and, subject to anything to the contrary set forth in
the Certificate of Incorporation applicable to the Preferred Stock, to subdivide
the number of shares, the stated value per share and the liquidation value per
share of the Series A Preferred Stock and in other respects to amend, within the
limitations provided by law, this resolution and the Certificate of
Incorporation.
4. Liquidation Rights.
Upon the sale of substantially all of the stock and assets of the
Company in a non-public transaction or dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, the holders of Series A
Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders the amount equal to their
original investment of $2.00 per share, plus any accrued and unpaid dividends
before any payment or distribution shall be made on the Common Stock or on any
other class of stock. If upon such liquidation, dissolution or winding up of the
Corporation whether voluntary or involuntary, the assets of the Corporation
shall be insufficient to permit payment to the holders of Series A Preferred
Stock of the amount distributable as aforesaid, then the entire assets of the
Corporation to be distributed to the holders of Capital Stock of the Corporation
shall be distributed rateably among the holders of the Series A Preferred Stock,
in proportion to the liquidation preference payable under this paragraph 4. For
purposes of this paragraph 4, the merger or consolidation of the Corporation or
the sale of all or substantially all of the Corporation's assets shall be deemed
to be a liquidation, dissolution or winding up of the Corporation. After the
payment to the holders of the shares of the Series A Preferred Stock of the full
preferential amounts provided for in this paragraph 4, the preferred shares have
no further rights and no right or claim to any remaining assets of the
Corporation.
5. Voting Rights.
(a) The shares of Series A Preferred Stock shall have no voting rights
except for those provided for by law. In exercising the voting rights granted by
operation of law, each share of Series A Preferred Stock shall be entitled to
one vote. In addition, the Corporation may not, without the prior written
consent of at least 66% of the holders of the Series A Preferred Stock:
(A) amend the Certificate of Incorporation or any
certificate or statement of the designations of the
powers, preferences and rights of any classes of
stock to in any way affect the rights and preferences
of holders of the Series A Preferred Stock;
(B) authorize any other class of Preferred Shares ranking
equal or superior to the Series A Preferred Stock;
and
(C) declare or pay any cash dividends on the Common
Stock.
5
<PAGE>
6. Dividends.
The holders of the Series A Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of funds legally
available for such purpose, cash dividends at the rate of $.30 per share per
annum commencing with the sixth anniversary of the issuance of such shares and
$.40 per share per annum, commencing with the seventh anniversary and continuing
thereafter. Such dividends shall be payable quarterly and shall accrue, whether
or not earned or declared from and after the sixth anniversary of the issuance
of such shares.
7. Redemption.
Commencing October 31, 1997, holders thereof have the right to require
the repurchase of such shares by the Company if the Company has not filed a
registration statement or a Notification under Regulation A with the U.S.
Securities and Exchange Commission and thereafter effected a public distribution
of any of its equity securities. The purchase price payable for each such share
shall be $8.49 per share payable in three consecutive annual installments of
$2.83. Under such circumstances, the Company would also be required to pay any
accrued and unpaid dividends due with respect to such shares, except payment of
such dividend may, at the option of the Company, be made in cash or additional
common stock of the Company or any combination thereof determined by the
Company, such common stock to be valued at $2.00 per share for such purposes.
Such dividends payable in cash shall be made in three equal annual installments
to coincide with the payment of the amount due in connection with the
redemption. Such election by the holder shall be made on not less than 90 days
prior written notice. Annual installments shall be paid on December 15 following
due notice and annually thereafter. Any such redemption shall be subject to
applicable provisions of law relating to the repurchase of shares by the
Company.
Series B Preferred Stock.
1. Designation; Number of Shares; Stated Value.
The designation of said series of the Preferred Stock shall be Series B
Convertible Preferred Stock (the "Series B Preferred Stock"). The number of
shares of Series B Preferred Stock shall be 166,667. The shares of Series B
Preferred Stock shall be issued as full shares and shall have a par value of
$.01 per share.
2. Conversion.
(a) Each share of Series B Preferred Stock is convertible into
one share of Common Stock at any time at the option of the holder and
automatically upon the completion by the Corporation of a public
offering of its securities which has been made pursuant to a
registration statement or a Notification order Regulation A filed with
the Securities and Exchange Commission under the Securities Act of
1933, as amended ("Public Offering").
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(b) The conversion rate shall be subject to adjustment as
follows:
(i) In case the Corporation shall (A) pay a dividend
on its Common Stock in shares of its Common Stock, (B)
subdivide its outstanding shares of Common Stock or (C)
combine its outstanding shares of Common Stock into a smaller
number of shares, the conversion rate in effect at the time of
such dividend, subdivision, or combination shall be
proportionately adjusted so that the holder of the Series B
Preferred Stock surrendered for conversion after such time
shall be entitled to receive the number and kind of shares
which he would have owned or have been entitled to receive had
such Series B Preferred Stock been converted immediately prior
to such time. Such adjustment shall be made successively
whenever any event listed above shall occur.
(ii) In case of any consolidation of the Corporation
into, or merger of the Corporation with or into, any other
corporation, or in case of any sale or transfer of all or
substantially all of the assets of the Corporation, or in case
of any reclassification of its shares of Common Stock, the
holder of each share of Series B Preferred Stock then
outstanding shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other
securities, cash and other property receivable upon such
consolidation, merger, sale, transfer or reclassification by a
holder of the number of shares of Common Stock of the
Corporation into which such share of Series B Preferred Stock
might have been converted immediately prior to such
consolidation, merger, sale, transfer or reclassification. In
any such event, effective provision shall be made in the
articles or certificate of incorporation of the resulting or
surviving corporation or other corporation issuing or
delivering such shares, other securities cash or other
property or otherwise so that the provisions set forth herein
for the protection of the conversion rights of the Series B
Preferred Stock shall thereafter be applicable, as nearly as
reasonably may be, to any such other shares of stock and other
securities, cash and other property deliverable upon
conversion of the Series B Preferred Stock remaining
outstanding or other convertible stock or securities received
by the holders in place thereof; and any such resulting or
surviving corporation or other corporation issuing or
delivering such shares, other securities, cash or other
property shall expressly assume the obligation to deliver,
upon the exercise of the conversion privilege, such shares,
securities, cash or other property as the holders of the
Series B Preferred Stock remaining outstanding, or other
convertible stock or securities received by the holders in
place thereof,k shall be entitled to receive pursuant to the
provisions hereof and to make provision for the protection of
the conversion right as above provided. In case shares,
securities, cash or other property other than Common Stock
shall be issuable or deliverable upon conversion as aforesaid,
then all references to Common Stock in this paragraph 2(b)
shall be deemed to apply, so far as provided and as nearly as
is reasonable, to any such shares, other securities, cash or
other property.
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(iii) No fractional interests in Common Stock shall
be issued upon conversion of shares of Series B Preferred
Stock. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any share of
Series B Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount
equal to the fair market value of Common Stock as reasonably
determined by the board of directors or issue an additional
share of Common Stock by rounding the fractional interest to
the nearest whole share.
(iv) In the event that at any time, as a result of
any adjustment made pursuant to this paragraph 2(b), the
holder of any share of Series B Preferred Stock thereafter
surrendered for conversion shall become entitled to receive
any shares of the Corporation other than shares of its Common
Stock, the number of such other shares so receivable upon
conversion of any share of Series B Preferred Stock shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provision
with respect to the Common Stock contained in subdivision (i),
above, with respect to the Common Stock.
(v) Whenever any adjustment is required in the number
of shares into which each share of Series B Preferred Stock is
convertible, the Corporation shall forthwith cause to be
mailed to the holders of record of the Series B Preferred
Stock a copy of a statement describing in reasonable detail
the method of calculation used in the adjustment.
(c) Upon any conversion of shares of Series B Preferred Stock,
the shares so converted shall have the status of authorized and
unissued shares of Preferred Stock, unclassified as to series, and the
number of shares of Preferred Stock which the Corporation shall have
authority to issue shall not be decreased by the conversion of shares
of Series B Preferred Stock. The Corporation shall at times reserve and
keep available, out of its authorized and unissued stock or stock held
as treasury stock, solely for the purpose of effecting the conversion
of the Series B Preferred Stock, such number of shares of its Common
Stock as shall from time to time be sufficient to effect the conversion
of all shares of Series B Preferred Stock form time to time
outstanding. For the purpose of this paragraph 2(c), the full number of
shares of Common Stock issuable upon the conversion of all outstanding
shares of Series B Preferred Stock shall be computed as if at the time
of computation of such number of shares of Common Stock all outstanding
shares of Series B Preferred Stock were held by a single holder. The
Corporation shall form time to time, in accordance with the laws of the
State of Delaware, increase the authorized number of shares of its
Common Stock if at any time the number of shares of its Common Stock
not outstanding shall not be sufficient to permit the conversion of all
the then outstanding Series B Preferred Stock.
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(d) The Corporation will pay any and all issue or other
similar taxes that may be payable in respect of any issue or delivery
of shares of Common Stock on conversion of Series B Preferred Stock
pursuant hereto. The Corporation shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the
issue or delivery of Common Stock in the name other than that in which
the Series B Preferred Stock so converted was registered, and no such
issue or delivery shall be made unless and until the person requesting
such issue has paid to the Corporation the amount of such tax, or has
established, to the satisfaction of the Corporation, that such tax has
been paid. Anything herein to the contrary notwithstanding, the
Corporation shall not be responsible or liable for any income,
franchise or similar taxes imposed on the holder of any share of Series
B Preferred Stock upon conversion thereof or otherwise.
(e) Before taking any action which would cause an adjustment
reducing the conversion rate such that the conversion price would be
below the then par value of the Common Stock, the Corporation will take
any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue
fully paid and nonassessable shares of Common Stock at the conversion
rate as so adjusted.
3. Number of Shares.
The Board of Directors reserves the right, by subsequent amendment of
this resolution, from time to time to decrease the number of shares which
constitute the Series B Preferred Stock (but not below the number of shares
thereof then outstanding) and, subject to anything to the contrary set forth in
the Certificate of Incorporation applicable to the Preferred Stock, to subdivide
the number of shares, the stated value per share and the liquidation value per
share of the Series B Preferred Stock and in other respects to amend, within the
limitations provided by law, this resolution and the Certificate of
Incorporation.
4. Liquidation Rights.
Upon the sale of substantially all of the stock and assets of the
Company in a non-public transaction or dissolution, liquidation, or winding up
of the corporation, whether voluntary or involuntary, the holders of the Series
B Preferred Stock shall be entitled, subject to the rights of the Corporation's
$2.00 Series A Convertible Preferred Stock or any other class of preferred stock
having a superior liquidation preference, to their proportionate share of any of
the remaining assets of the Corporation available for distribution to
stockholders based on their equity interest assuming full conversion of such
holders' shares of Series B Preferred Stock into Common Stock.
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5. Voting Rights.
(a) The shares of Series B Preferred Stock shall have no
voting rights except for those provided for by law. In exercising the voting
rights granted by operation of law, each share of Series B Preferred Stock shall
be entitled to one vote. In addition, the Corporation may not, without the prior
written consent of at least 66% of the holders of the Series B Preferred Stock:
(A) amend the Certificate of Incorporation or any
certificate or statement of the designations of the
powers, preferences and rights of any classes of
stock to in any way affect the rights and preferences
of holders of the Series B Preferred Stock;
(B) authorize any other class of Preferred Shares ranking
equal or superior to the Series B Preferred Stock;
and
(C) declare or pay any cash dividends on the Common
Stock.
6. Dividends.
The holders of the Series B Preferred Stock shall not be entitled to
receive cash dividends.
7. Redemption.
Commencing October 31, 1997, holders of the Series B Preferred Stock
have the right upon written notice to the Corporation, to require the repurchase
of such shares by the Company. The purchase price payable for each such share
shall be $2.00 per share payable in two equal installments payable as follows:
(i) 50% of the amount payable shall be paid within sixty (60) days of the
delivery of such written notice to the Company; and (ii) the balance shall be
paid one year from such date, together with interest calculated at the rate of
10% per annum. Said installment to be evidenced by a promissory note. Any such
redemption shall be subject to applicable provisions of law relating to the
repurchase of shares by the Company.
In the event that the holder of the Series B does not either exercise
its right of redemption hereunder or convert said shares to Common Stock, then,
in such event, the Corporation shall have the right, at anytime commencing
October 31, 1997, exercisable upon ten (10) days written notice, to purchase
from the holders of the Series B Preferred Stock, all or part of the Series B
Preferred Stock at a price per share of $12.00, subject to proportionate
adjustments in the event of stock splits, dividends or similar reclassification
of said Series B Preferred Stock. The purchase price shall be payable in two
equal installments, the first to be made within sixty (60) days of such election
by the Corporation and the balance, thereof, without interest thereon, one year
thereafter.
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FIFTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The number of directors of the Corporation shall be such
as from time to time shall be fixed by, or in the manner provided in, the
by-laws. Election of directors need not be by ballot unless the by-laws so
provide.
(2) The Board of Directors shall have power without the assent
or vote of the stockholders to make, alter, amend, change, add to or repeal the
by-laws of the Corporation; to fix and vary the amount to be reserved for any
proper purpose; to authorize and cause to be executed mortgages and liens upon
all or any part of the property of the Corporation; to determine the use and
disposition of any surplus or net profits; and to fix the times for the
declaration and payment of dividends.
(3) In addition to the powers and authorities hereinbefore or
by statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this Certificate, and to any by-laws from time to time
made by the stockholder; provided, however, that no by-laws so made shall
invalidate any prior act of the directors which would have been valid if such
by-law had not been made.
SIXTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto.
SEVENTH: No director of the Corporation shall be personally liable to
the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent limited by Section 102(b) of
the Delaware General Corporation Law, as amended from time to time.
EIGHTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
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NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this restated certificate of incorporation in
the manner now or hereafter prescribed by law, and all rights and powers
conferred herein on stockholders, directors and officers are subject to this
reserved power.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation
of the Corporation has been executed this th day of , 1996.
---------------------------------------
Bahar Gidwani, Chief Executive Officer
- -----------------------------
Bahar Gidwani, Secretary
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BY LAWS
OF
INDEX STOCK PHOTOGRAPHY INC.
----------------------------
(as amended on May 30, 1996)
ARTICLE I - OFFICERS
The principal office of the Corporation shall be located in the City, County and
State so provided in the Certificate of Incorporation. The Corporation may also
maintain offices at such other places within or without the State of Delaware as
the Board of Directors may, from time to time, determine and the business may
require.
ARTICLE II - SHAREHOLDERS
1. Place of Meetings.
Meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places within or without the State of Delaware as
the Board shall authorize.
2. Annual Meetings.
The annual meeting of the shareholders of the Corporation shall be held at
2:OO PM on the last Tuesday of the third month in each year after the close of
the fiscal year of the Corporation, if such date is not a legal holiday and if a
legal holiday, then on the next business day following at the same hour, at
which time the shareholders shall elect a Board of Directors, and transact such
other business as may properly come before the meeting.
3. Special Meetings.
Special meetings of the shareholders may be called at any time by the Board or
by the President, and shall be called by the President or the Secretary at the
written request of the holders of ten (10%) per cent of the outstanding shares
entitled to vote thereat, or as otherwise required by law.
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4 Notice of Meetings.
Written notice of each meeting of shareholders, whether annual or special,
stating the time when and place where it is to be held, shall be served either
personally or by mail. Such notice shall be served not less than ten (10) nor
more than sixty (60) days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by the person calling the meeting. If at any
meeting, action is proposed to be taken that would, if taken, entitle
shareholders to receive payment for their shares, the notice of such meeting
shall include a statement of that purpose and to that effect. If mailed, such
notice shall be directed to each such shareholder at his address, as it appears
on the records of the shareholders of the Corporation, unless he shall have
previously filed with the Secretary of the Corporation a written request that
notices intended for him be mailed to some other address, in which event, it
shall be mailed to the address designated in such request.
5. Waiver.
Notice of any meeting need not be given to any shareholder who submits a signed
waiver of notice either before or after a meeting. The attendance of any
shareholder at a meeting, in person or by proxy, shall constitute a waiver of
notice by such shareholder.
6. Fixing Record Date.
For the purpose of determining the shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board shall
fix, in advance, a date as the record date for any such determination of
shareholders. Such date shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no record date is fixed, it shall be determined in accordance
with the provisions of law.
7. Quorum.
(a) Except as otherwise provided by the Certificate of Incorporation, at all
meetings of shareholders of the Corporation, the presence at the commencement of
such meetings, in person or by proxy, of shareholders holding a majority of the
total number of shares of the Corporation then issued and outstanding on the
records of the Corporation and entitled to vote, shall be necessary and
sufficient to constitute a quorum for the transaction of any business. If a
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specified item of business is required to be voted on by a class or classes, the
holder of a majority of the shares of such class or classes shall constitute a
quorum for the transaction of such specified item of business. The withdrawal of
any shareholder after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting.
8. Voting.
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation,
(1) directors shall be elected by a plurality of the
votes cast; and
(2) all other corporate action to be taken by vote of
the shareholders, shall be authorized by a majority
of votes cast;
at a meeting of shareholders by the holders of shares entitled to vote thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of shares
of the Corporation entitled to vote, shall be entitled to one vote for each
share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact duly authorized in writing. No proxy shall
be voted or acted upon after three (3) years, unless the proxy shall specify the
length of time it is to continue in force. The proxy shall be delivered to the
Secretary at the meeting and shall be filed with the records of the Corporation.
Every proxy shall be revocable at the pleasure of the shareholder executing it,
unless the proxy states that it is irrevocable, except as otherwise provided by
law.
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(d) Any action that may be taken by vote may be taken without a meeting on
written consent. Such action shall constitute action by such shareholders with
the same force and effect as if the same had been approved at a duly called
meeting of shareholders and evidence of such approval signed by all of the
shareholders shall be inserted in the Minute Book of the Corporation.
ARTICLE III - BOARD OF DIRECTORS
1. Number.
The number of the directors of the Corporation shall XXXXXXXX XXXXX XXXXXXXX
until otherwise determined by a XXX XXX XXX XXXX vote of the Board, a XXXXXXXXX
XXX no event be less than three, unless all of the outstanding XXXX XXXX XXXX
XXXX XXXX XXX are owned of record by less than three shareholders XXXXXXX XXXXX
XXXX event, the number of directors shall not be less than the number of
shareholders.
2. Election.
Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board need not be shareholders and shall be
elected by a majority of the votes cast at a meeting of shareholders, by the
holders of shares entitled to vote in the election.
3. Term of Office.
Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
4. Duties and Powers.
The Board shall be responsible for the control and management of the affairs,
property and interests of the Corporation, and may exercise all powers of the
Corporation, except those powers expressly conferred upon or reserved to the
shareholders.
5. Annual Meetings.
Regular annual meetings of the Board shall be held immediately following the
annual meeting of shareholders.
6. Regular Meetings and Notice.
The Board may provide by resolution for the holding of regular meetings of the
Board of Directors, and may fix the time and place thereof.
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Notice of regular meetings shall not be required to be given and, if given, need
not specify the purpose of the meeting; provided however, that in case the Board
shall fix or change the time or place of any regular meeting, notice of such
action be given to each director who shall not have been present at the meeting
at which such action was taken within the time limited, and in the manner set
forth at Section 7 of this Article III, unless such notice shall be waived.
7. Special Meetings and Notice.
(a) Special meetings of the Board shall be held whenever called by the President
or by one of the directors, at such time and place as may be specified in the
respective notices or waivers of notice thereof.
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at the address designated by him for such purpose at his usual
place of business, at least two (2) business days before the day on which the
meeting is to be held, or delivered to him personally or given to him orally,
not later than the business day before the day on which the meeting is to be.
held.
(c) Notice of a special meeting shall not be required to be given to any
director who shall attend such meeting, or who submits a signed waiver of
notice.
8. Chairman.
At all meetings of the Board, the Chairman, if present, shall preside. If
there shall be no Chairman, or he shall be absent, then the President shall
preside. In his absence, the Chairman shall be chosen by the Directors present.
9. Quorum and Adjournments.
(a) At all meetings of the Board, the presence of a majority of the entire Board
shall be necessary to constitute a quorum for the transaction of business,
except as otherwise provided by law, by the Certificate of Incorporation, or by
these By-laws. Participation of any one or more members of the Board by means of
a conference telephone or similar communications equipment, allowing all persons
participating in the meeting to hear each other at the same time, shall
constitute presence in person at any such meeting.
(b) A majority of the directors present at any regular or special meeting,
although less than a quorum, may adjourn the same from time to time without
notice, until a quorum shall be present.
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10. Manner of Acting.
(a) At all meetings of the Board, each director present shall have one vote.
(b) Except as otherwise provided by law, by the Certificate of Incorporation, or
these By-Laws, the action of a majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board. Any action
authorized, in writing, by all of the directors entitled to vote thereon and
filed with the minutes of the Corporation shall be the act of the Board with the
same force and effect as if the same had been passed by unanimous vote at a duly
called meeting of the Board.
11. Vacancies.
Any vacancy in the Board of Directors resulting from an increase in the number
of directors, or the death, resignation, disqualification, removal or inability
to act of any director, shall be filled for the unexpired portion of the term by
a majority vote of the remaining directors, though less than a quorum, at any
regular meeting or special meeting of the Board called for that purpose.
12. Resignation.
Any director may resign at any time by giving written notice to the Board, the
President or the Secretary of the Corporation. Unless otherwise specified in
such written notice, such resignation shall take effect upon receipt thereof by
the Board or such officer, and the acceptance of such resignation shall not be
necessary to make it effective.
13. Removal.
Any director may be removed, with or without cause, at any time by the holders
of a majority of the shares then entitled to vote at an election of directors,
at a special meeting of the shareholders called for that purpose, and may be
removed for cause by action of the Board.
14. Compensation.
No compensation shall be paid to directors as such, for their services, but by
resolution of the BOARD, a fixed sum and expenses for actual attendance may be
authorized for attendance at each regular or special meeting of the Board.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
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15. Contracts.
(a) No contract or other transaction between this Corporation and any other
business shall be affected or invalidated, nor shall any director be liable in
any way by reason of the fact that a director of this Corporation is interested
in, or is financially interested in such other business, provided such fact is
disclosed to the Board.
(b) Any director may be a party to or may be interested in any contract or
transaction of this Corporation individually, and no director shall be liable in
any way by reason of such interest, provided that the fact of such participation
or interest be disclosed to the Board and provided that the Board shall
authorize or ratify such contract or transaction by the vote (not counting the
vote of any such director) of a majority of a quorum, notwithstanding the
presence of any such director at the meeting at which such action is taken. Such
director may be counted in determining the presence of a quorum at such meeting.
This Section shall not be construed to invalidate or in any way affect any
contract or other transaction which would otherwise be valid under the law
applicable thereto.
16. Committees.
The Board, by resolution adopted by a majority of the entire Board, may from
time to time designate from among its members an executive committee and such
other committees, and alternate members thereof, as they deem desirable, each
consisting of three or more members, which such powers and authority (to the
extent permitted by law) as may be provided in such resolution. Each such
committee shall remain in existence at the pleasure of the Board. Participation
of any one or more members of a committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time, shall constitute a director's
presence in person at any such meeting. Any action authorized in writing by all
of the members of a committee and filed with the minutes of the committee shall
be the act of the committee with the same force and effect as if the same had
been passed by unanimous vote at a duly called meeting of the committee.
ARTICLE IV - OFFICERS
1. Number and Qualifications.
The officers of the Corporation shall consist of a Chief Executive Officer,
President, one or more Vice Presidents, a Secretary, a Treasurer, and such other
officers, including a Chairman of the Board, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board
may be, but is not required to be, a director of the Corporation. Any two or
more offices may be held by the same person, except the offices of President
and Secretary.
B/L-7-
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2. Election.
The officers of the Corporation shall be elected by the Board at the regular
annual meeting of the Board following the annual meeting of shareholders.
3. Term of Office.
Each officer shall hold office until the annual meeting of the Board next
succeeding his election, and until his successor shall have been elected and
qualified, or until his death, resignation or removal.
4. Resignation.
Any officer may resign at any time by giving written notice thereof to the
Board, the President or the Secretary of the Corporation. Such resignation
shall take effect upon receipt thereof by the Board or by such officer, unless
otherwise specified in such written notice. The acceptance of such resignation
shall not be necessary to make it effective.
5. Removal.
Any officer, whether elected or appointed by the Board, may be removed by the
Board, either with or without cause, and a successor elected by the Board at any
time.
6. Vacancies.
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board.
7. Duties.
Unless otherwise provided by the Board, officers of the Corporation shall each
have such powers and duties as generally pertain to their respective offices,
such powers and duties as may be set forth in these by-laws, and such powers and
duties as may be specifically provided for by the Board. The President shall be
the chief executive officer of the Corporation.
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8. Sureties and Bonds.
At the request of the Board, any officer, employee or agent of the Corporation
shall execute for the Corporation a bond in such sum, and with such surety as
the Board may direct, conditioned upon the faithful performance of his duties to
the Corporation, including responsibility for negligence and for the accounting
for all property, funds or securities of the Corporation which may come into his
hands.
9. Shares of Other Corporations.
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder shall be exercised on
behalf of the Corporation in such manner as the Board may authorize.
ARTICLE V - SHARES OF STOCK
1. Certifications.
(a) The certificates representing shares in the Corporation shall be in such
form as shall be approved by the Board and shall be numbered and registered in
the order issued. They shall bear the holder's name and the number of shares and
shall be signed by (i) the Chairman of the Board or the Vice Chairman of the
Board or the President or a Vice President, and (ii) the Secretary or Treasurer,
or any Assistant Secretary or Assistant Treasurer, and shall bear the corporate
seal.
(b) Certificate representing shares shall not be issued until they are fully
paid for.
(c) The Board may authorize the issuance of certificates for fractions of a
share which shall entitle the holder to exercise voting rights, receive
dividends and participate in liquidating distributions, in proportion to the
fractional holdings.
2. Lost or Destroyed Certificates.
Upon notification by the holder of any certificate representing shares of the
Corporation of the loss or destruction of one or more certificates representing
the same, the Corporation may issue new certificates in place of any
certificates previously issued by it, and alleged to have been lost or
destroyed. Upon production of evidence of loss or destruction, in such form as
the Board in its sole discretion may require, the Board may require the owner of
the lost or destroyed certificates to provide the Corporation with a bond in
such sum as the Board may direct, and with such surety as may be satisfactory to
the Board, to indemnify the Corporation against any claims, loss, liability or
damage it may suffer on account of the issuance of the new certificates. A new
certificate may be issued without requiring any such evidence or bond when, in
the judgment of the Board, it is proper to do so.
B/L-9-
<PAGE>
3. Transfers of Shares.
(a) Transfers of shares of the Corporation may be made on the share records of
the Corporation solely by the holder of such records, in person or by a duly
authorized attorney, upon surrender for cancellation of the certificates
representing such shares, with an assignment or power of transfer endorsed
thereon or delivered therewith, duly executed and with such proof of the
authenticity of the signature, and the authority to transfer and the payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any
shares as the absolute owner thereof for all purposes and shall not be bound to
recognize any legal, equitable or other claim to, or interest in, such shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise expressly provided by law.
(c) The Corporation shall be entitled to impose such restrictions on the
transfer of shares as may be necessary for the purpose of electing or
maintaining Subchapter S status under the Internal Revenue Code or for the
purpose of securing or maintaining any other tax advantage to the Corporation.
4. Record Date.
In lieu of closing the share records of the Corporation, the Board may fix, in
advance, a date not less than ten (10) days nor more than sixty (60) days, as
the record date for the determination of shareholders entitled to receive notice
of, and to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the
purpose of determining shareholders entitled to receive payment of any
dividends, or allotment of any rights, or for the purpose of any other
action. If no record date is fixed, the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the day immediately preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
immediately preceding the day on which the meeting is held; the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the resolution of the directors relating thereto is adopted.
The record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior action by the Board
is necessary, shall be the day on which the first written consent is expressed.
When a determination of shareholders of record entitled to notice of or to vote
at any meeting of shareholders has been made as provided for herein, such
determination shall apply to any adjournment thereof, unless the directors fix a
new record date for the adjourned meeting.
B/L-10-
<PAGE>
ARTICLE VI - DIVIDENDS
Subject to this Certificate of Incorporation and to applicable law, dividends
may be declared and paid out of any funds available therefor, as often, in such
amount, and at such time or times as the Board may determine. Before payment of
any dividends, there may be set aside out of the net profits of the Corporation
available for dividends, such sum or sums as the Board, from time to time, in
its sole discretion, deems proper as a reserve fund to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board shall think conducive to the
interests of the Corporation, and the Board may modify or abolish any such
reserve.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board from time to
time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from,
time to time by the Board.
ARTICLE IX - AMENDMENTS
1. By Shareholders.
All by-laws of the Corporation shall be subject to revision, amendment or
repeal, and new by-laws may be adopted from time to time by a majority of the
shareholders who are at such time entitled to vote in the election of directors.
2. By Directors.
The Board of Directors shall adopt a resolution setting forth the amendment
proposed declaring its advisability and either calling a special meeting of the
stockholders entitled to vote in respect thereto for the consideration of such
amendment or directing that the amendment proposed be considered at the next
annual meeting of stockholders. Such special or annual meeting shall be called
and held upon notice. This notice shall set forth such amendment in full or a
brief summary of the changes to be effected thereby, as the directors shall deem
advisable. At the meeting a vote of the stockholders entitled to vote thereon
shall be taken for and against the proposed amendment. If a majority of the
outstanding stock entitled to vote thereon, and a majority of the outstanding
stock of each class entitled to vote thereon as a class has been voted in favor
of the amendment, a certificate setting forth the amendment and certifying that
such amendment has been duly adopted in accordance with this section shall be
executed, acknowledged, filed and recorded and shall become effective.
Dated: April 25, 1991
-----------------------------------
-------------------------------
Incorporator
B/L-11-
<PAGE>
THE WARRANTS AND COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AS AMENDED (THE "ACT"), AND THE WARRANTS
AND COMMON STOCK ISSUABLE ON EXERCISE OF WARRANTS
MAY NOT BE SOLD UNLESS THERE IS A REGISTRATION
STATEMENT IN EFFECT COVERING THE
WARRANTS AND COMMON STOCK OR THERE IS AVAILABLE AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT
Void after 5:00 P.M., New York City time, on January 24, 1999
WARRANT TO PURCHASE 15,000 SHARES OF COMMON STOCK
OF
INDEX STOCK PHOTOGRAPHY, INC.
This is to certify that, for value received, Andrew J.
Shechtel, or assigns (the "Holder" or "Holders") is entitled to purchase,
subject to the provisions of this warrant, from Index Stock Photography, Inc., a
Delaware corporation (the "Company"), Fifteen Thousand (15,000) shares (the
"Warrant Shares" or the "Shares") of the common stock of the Company (the
"Common Stock"), at an exercise price of $3.30 per share, exercisable prior to
January 24, 1999. This Warrant shall not be exercisable after 5:00 P.M., New
York City time, on January 24, 1999 (which shall be referred to herein as the
"Exercise Term"), subject to adjustment as set forth hereinafter. This warrant,
and any warrant resulting from a transfer or subdivision of this warrant shall
sometimes hereinafter be referred to as a "Warrant." The number of shares of
Common Stock to be received upon the exercise of this Warrant and the price to
be paid for a share of Common Stock may be adjusted from time to time as set
forth in Section 6 below.
<PAGE>
1. Exercise of Warrant. Each Warrant shall entitle the Holder
thereof to purchase one share of Common Stock at the exercise price of $3.30 per
share, subject to adjustment as provided for in Section 6 below. This Warrant
may also be exercised in whole or in part at any time or from time to time
during the period commencing on the date hereof and continuing through the last
day of the Exercise Term, or if such day is a day on which banking institutions
in the State of New York are authorized by law to close, then on the next
succeeding day which shall not be such a day, by presentation and surrender
hereof to the Company at its principal office, or at the office of its stock
transfer agent, if any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the exercise price for the number of shares specified
in such form. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the rights of the Holder thereof to purchase the balance
of the shares purchasable hereunder. Upon receipt by the Company of this Warrant
at its office, or by the stock transfer agent of the Company at its office, in
proper form for exercise and accompanied by the appropriate payment for the
Warrant Shares issuable upon such exercise, the Holder shall be deemed to be the
holder of record of such Warrant Shares, notwithstanding that the stock transfer
books of the Company shall then be closed or that certificates representing such
Warrant Shares shall not then be actually delivered to the Holder. Certificates
for the Warrant Shares shall be delivered to the Holder within a reasonable
time, not to exceed five (5) business days following the exercise of this
Warrant. In the event that the Company shall declare any dividend prior to the
exercise of this Warrant, whether payable in cash, stock or property of the
Company, then in such event, upon the exercise of each warrant, the Company
shall, in addition to the Warrant Shares deliverable upon such exercise, also
deliver to the holder the dividends that such holder would have received had
this Warrant been exercised prior to the declaration of such dividend.
2. Reservation and Listing of Shares. The Company hereby
agrees that at all times there shall be reserved for issuance and delivery upon
exercise of this Warrant, such number of shares of its Common Stock as shall be
required for issuance and delivery upon exercise of this Warrant.
3. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise
of this Warrant.
2
<PAGE>
4. Exchange, Transfer, Assignment or Loss of Warrant. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company at its office or at the office
of its stock transfer agent, if any, for other Warrants of different
denominations entitling the Holder thereof to purchase in the aggregate the same
number of shares of Common Stock as are purchasable hereunder. Subject to
Section 8 hereof, upon surrender of this Warrant to the Company at its principal
office or at the office of its stock transfer agent, if any, with the Assignment
Form annexed hereto duly executed and funds sufficient to pay the applicable
transfer tax, if any, the Company shall, without charge, execute and deliver a
new Warrant in the name of the assignee named in such instrument of assignment
and this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other Warrants which carry the same rights upon presentation
thereof at the office of the Company or at the office of its stock transfer
agent, if any, together with a written notice signed by the Holder hereof
specifying the names and denominations in which new Warrants are to be issued.
Upon receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant, when executed and
delivered, shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
5. Rights of the Holder. The Holder shall not, by
virtue hereof, be entitled to any rights of a shareholder of the
Company until exercise hereof.
6. Stock Splits and Other Combinations. In case the
Company shall at any time effect any stock splits or any
proportionate adjustment of its capital stock, the exercise price
shall forthwith be proportionately increased or decreased.
(a) Adjustment in Number of Shares.
(i) Upon each adjustment of the exercise price pursuant
to the provisions of this Section (6), the number of Shares issuable upon the
exercise of each Warrant shall be adjusted to the nearest full Share by
multiplying a number equal to the exercise price in effect immediately prior to
such adjustment by the number of Shares issuable upon exercise of the Warrants
immediately prior to such adjustment and dividing the product so obtained by the
adjusted exercise price.
(b) Reclassification, Consolidation, Merger, etc.
In case of any reclassification or change of the outstanding shares of Common
Stock (other than a change in par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in the case of
any consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result
3
<PAGE>
of a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of all
or a substantial part of the property of the Company, the Holder shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying the Warrants immediately prior to any such
events at a price equal to the product of (x) the number of shares issuable upon
exercise of the Warrants and (y) the exercise price in effect immediately prior
to the record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holder had exercised the Warrants. The Exercise
Term shall not be modified or otherwise affected by any of the aforementioned
transactions and the terms of any such transactions cannot require the holder of
this Warrant to exercise this Warrant prior to the Exercise Term in order for
the holder to have the right to purchase the kind and number of shares of stock
and other securities and property receivable upon any such reclassification,
change, consolidation, merger, sale or conveyance as hereinabove referred to.
7. Definition of "Common Stock." For the purpose of this
Warrant, the term "Common Stock" shall mean, in addition to the class of stock
designated as the Common Stock, $.0001 par value, of the Company on the date
hereof, any class of stock resulting from successive changes or
reclassifications of the 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. If at any
time, as a result of an adjustment made pursuant to one or more of the
provisions of Section 6 hereof, the shares of stock or other securities or
property obtainable upon exercise of this Warrant shall include securities of
the Company other than shares of Common Stock or securities of another
corporation, then thereafter the amount of such other securities so obtainable
shall be subject to adjustment from time to time in a manner and upon terms as
nearly equivalent as practicable to the provisions with respect to Common Stock
contained in Section 6 hereof and all other provisions of this Warrant with
respect to common Stock shall apply on like terms to any such other shares or
other securities.
8. Transfer to Comply with the Act. This Warrant or the Shares
or any other security issued or issuable upon exercise of this Warrant may not
be sold or otherwise disposed of except as follows:
a. to a person who, in the opinion of counsel
for the Company, is a person to whom this Warrant or Warrant Shares may legally
be transferred without registration and without the delivery of a current
prospectus under the Securities Act of 1933 (the "Act") and then only against
receipt of a letter from such person in which such person represents that he is
acquiring the Warrants or Warrant Shares for his own account for investment
purposes and not with a view to distribution, and in which such person agrees to
comply with the provisions of this Section (8) with respect to any resale or
other disposition of such securities; or
4
<PAGE>
b. to any person upon delivery of a prospectus
then meeting the requirements of the Act relating to such securities and the
offering thereof for such sale or disposition.
9. 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.
10. Successors. All the covenants and provisions of
this Warrant by or for the benefit of the Holder shall inure to
the benefit of his successors and assigns hereunder.
11. Termination. This Warrant will terminate on any
earlier date when it has been entirely exercised and all the
Shares issuable upon exercise of this Warrant have been resold to
the public.
12. Governing Law. This Warrant shall be deemed to be
made under the laws of the State of New York and for all purposes
shall be construed in accordance with the laws of said State.
13. Entire Agreement; Amendment; Waiver. This Warrant
and all attachments hereto and all incorporation by references
set forth herein, set forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and
understandings of any and every nature among them. This Warrant may be amended,
the Company may take any action herein prohibited or omit to take any action
herein required to be performed by it, and any breach of any covenant,
agreement, warranty or representation may be waived, only if the Company has
obtained the written consent or waiver of the Holder. No course of dealing
between or among any persons having any interest in this Warrant will be deemed
effective to modify, amend or discharge any part of this Warrant or any rights
or obligations of any person under or by reason of this Warrant.
INDEX STOCK PHOTOGRAPHY, INC.
By:
---------------------------------
Name: Bahar Gidwani
Title: Chief Executive Officer
5
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
ASSIGNMENT FORM
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto________________________________________________________________
______________________________________________________________________________
(Name and address of assignee must be printed or typewritten) the rights of the
undersigned represented by this Warrant, to the extent of _______________
(__________) shares of Common Stock, $.0001 par value, of Index Stock
Photography, Inc. (the "Company") hereby irrevocably constituting and appointing
_________________________ Attorney to make such transfer on the books of the
Company, with full power of substitution in the premises.
Dated:_______________________________ , 199 ______________________________
Signature of Registered Holder
Signature Guaranteed:
_______________________
Note: The above signature must correspond
with the name as it appears upon the
front page of this Warrant in every
particular, without alteration or
enlargement or any change whatever.
6
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
PURCHASE FORM
Index Stock Photography, Inc.
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by this Warrant for, and to purchase hereunder,
___________________ shares of Common Stock, $.0001 par value per share, of Index
Stock Photography, Inc. (the "Shares") provided for herein, and requests that
certificates for the Shares be issued in the name of:_________________________
______________________________________________________________________________
(Please print name, address and social security number) and, if said number of
Shares shall not be all the Share purchasable hereunder, that a new Warrant for
the balance of the Shares purchasable under this Warrant be registered in the
name of the undersigned Warrantholder or his Assignee as below indicated and
delivered to the address stated below.
Dated:___________________________________, 199__
Name of Warrantholder or Assignee:_______________________________________
(Please print)
Address:______________________________________________________________
______________________________________________________________
Signature: ___________________________________________________________
Signature Guaranteed:
____________________________
Note: The above signature must correspond
with the name as it appears upon the
front page of this Warrant in every
particular, without alteration or
enlargement or any change whatever,
unless this Warrant has been
assigned.
7
<PAGE>
THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF 1933. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT PURPOSED ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR
RESALE, AND MAY NOT BE SOLD, TRANSFERRED, MADE SUBJECT TO A SECURITY INTEREST,
PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED
UNDER THE SECURITIES EXCHANGE ACT OF 1933, OR AN OPINION OF COUNSEL FOR THE
COMPANY IS RECEIVED THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
Void after 5:00 P.M., New York City time, on March 31, 2001
WARRANT TO PURCHASE 40,000 SHARES OF COMMON STOCK
OF
INDEX STOCK PHOTOGRAPHY, INC.
This is to certify that, for value received, , or assigns (the
"Holder" or "Holders") is entitled to purchase, subject to the provisions of
this warrant, from Index Stock Photography, Inc., a Delaware corporation (the
"Company"), Forty Thousand (40,000) shares (the "Warrant Shares" or the
"Shares") of the common stock of the Company (the "Common Stock"), at an
exercise price of $4.00 per share, exercisable prior to March 31, 2001. This
Warrant shall not be exercisable after 5:00 P.M., New York City time, on March
31, 2001 (which shall be referred to herein as the "Exercise Term"), subject to
adjustment as set forth hereinafter. This warrant, and any warrant resulting
from a transfer or subdivision of this warrant shall sometimes hereinafter be
referred to as a "Warrant." The number of shares of Common Stock to be received
upon the exercise of this Warrant and the price to be paid for a share of Common
Stock may be adjusted from time to time as set forth in Section 6 below.
<PAGE>
1. Exercise of Warrant. Each Warrant shall entitle the Holder
thereof to purchase one share of Common Stock at the exercise price of $4.00 per
share, subject to adjustment as provided for in Section 6 below. This Warrant
may also be exercised in whole or in part at any time or from time to time
during the period commencing on the date hereof and continuing through the last
day of the Exercise Term, or if such day is a day on which banking institutions
in the State of New York are authorized by law to close, then on the next
succeeding day which shall not be such a day, by presentation and surrender
hereof to the Company at its principal office, or at the office of its stock
transfer agent, if any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the exercise price for the number of shares specified
in such form. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the rights of the Holder thereof to purchase the balance
of the shares purchasable hereunder. Upon receipt by the Company of this Warrant
at its office, or by the stock transfer agent of the Company at its office, in
proper form for exercise and accompanied by the appropriate payment for the
Warrant Shares issuable upon such exercise, the Holder shall be deemed to be the
holder of record of such Warrant Shares, notwithstanding that the stock transfer
books of the Company shall then be closed or that certificates representing such
Warrant Shares shall not then be actually delivered to the Holder. Certificates
for the Warrant Shares shall be delivered to the Holder within a reasonable
time, not to exceed five (5) business days following the exercise of this
Warrant. In the event that the Company shall declare any dividend prior to the
exercise of this Warrant, whether payable in cash, stock or property of the
Company, then in such event, upon the exercise of each warrant, the Company
shall, in addition to the Warrant Shares deliverable upon such exercise, also
deliver to the holder the dividends that such holder would have received had
this Warrant been exercised prior to the declaration of such dividend.
2
<PAGE>
2. Reservation and Listing of Shares. The Company hereby
agrees that at all times there shall be reserved for issuance and delivery upon
exercise of this Warrant, such number of shares of its Common Stock as shall be
required for issuance and delivery upon exercise of this Warrant.
3. Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
4. Exchange, Transfer, Assignment or Loss of Warrant. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company at its office or at the office
of its stock transfer agent, if any, for other Warrants of different
denominations entitling the Holder thereof to purchase in the aggregate the same
number of shares of Common Stock as are purchasable hereunder. Subject to
Section 8 hereof, upon surrender of this Warrant to the Company at its principal
office or at the office of its stock transfer agent, if any, with the Assignment
Form annexed hereto duly executed and funds sufficient to pay the applicable
transfer tax, if any, the Company shall, without charge, execute and deliver a
new Warrant in the name of the assignee named in such instrument of assignment
and this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other Warrants which carry the same rights upon presentation
thereof at the office of the Company or at the office of its stock transfer
agent, if any, together with a written notice signed by the Holder hereof
specifying the names and denominations in which new Warrants are to be issued.
Upon receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant, when executed and
delivered, shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
3
<PAGE>
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder of the Company until exercise
hereof.
6. Stock Splits and Other Combinations. In case the Company
shall at any time effect any stock splits or any proportionate adjustment of its
capital stock, the exercise price shall forthwith be proportionately increased
or decreased. The holder of this Warrant has been advised by the Company that
the Company has entered into a letter of intent with Kaufman Bros. L.P., which
letter of intent contemplates a public offering of the securities of the
Company. There can be no assurance that such offering will occur, although the
Holder has been advised and acknowledges that the letter of intent contemplates
a reverse stock split that would result in an adjustment in the number of shares
issuable hereunder and the exercise price per share payable by the Holder upon
such exercise.
(a) Adjustment in Number of Shares.
(i) Upon each adjustment of the exercise price pursuant to the
provisions of this Section 6, the number of Shares issuable upon the exercise of
each Warrant shall be adjusted to the nearest full Share by multiplying a number
equal to the exercise price in effect immediately prior to such adjustment by
the number of Shares issuable upon exercise of the Warrants immediately prior to
such adjustment and dividing the product so obtained by the adjusted exercise
price.
4
<PAGE>
(b) Reclassification, Consolidation, Merger, etc. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of all
or a substantial part of the property of the Company, the Holder shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holder were the owner of the
shares of Common Stock underlying the Warrants immediately prior to any such
events at a price equal to the product of (x) the number of shares issuable upon
exercise of the Warrants and (y) the exercise price in effect immediately prior
to the record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holder had exercised the Warrants. The Exercise
Term shall not be modified or otherwise affected by any of the aforementioned
transactions and the terms of any such transactions cannot require the holder of
this Warrant to exercise this Warrant prior to the Exercise Term in order for
the holder to have the right to purchase the kind and number of shares of stock
and other securities and property receivable upon any such reclassification,
change, consolidation, merger, sale or conveyance as hereinabove referred to. 5
5
<PAGE>
(c) Fractional Shares. As to any fraction of a share which the
holder of this Warrant would be entitled to purchase upon exercise of this
Warrant, the Company shall pay, in lieu of such fractional interest, an amount
in cash equal to the current market value of such fractional interest, to the
nearest one-hundredth of a share computed on the basis of the Market Price, as
set forth below. The Holder, by his acceptance hereof, expressly waives any
right to receive any fractional share of stock or fractional Warrant upon
exercise of this Warrant. 7. Definition of "Common Stock." For the purpose of
this Warrant, the term "Common Stock" shall mean, in addition to the class of
stock designated as the Common Stock, $.0001 par value, of the Company on the
date hereof, any class of stock resulting from successive changes or
reclassifications of the 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. If at any
time, as a result of an adjustment made pursuant to one or more of the
provisions of Section 6 hereof, the shares of stock or other securities or
property obtainable upon exercise of this Warrant shall include securities of
the Company other than shares of Common Stock or securities of another
corporation, then thereafter the amount of such other securities so obtainable
shall be subject to adjustment from time to time in a manner and upon terms as
nearly equivalent as practicable to the provisions with respect to Common Stock
contained in Section 6 hereof and all other provisions of this Warrant with
respect to common Stock shall apply on like terms to any such other shares or
other securities.
6
<PAGE>
8. Transfer to Comply with the Act. This Warrant or the Shares
or any other security issued or issuable upon exercise of this Warrant may not
be sold or otherwise disposed of except as follows:
a. to a person who, in the opinion of counsel for the Company,
is a person to whom this Warrant or Warrant Shares may legally be transferred
without registration and without the delivery of a current prospectus under the
Securities Act of 1933 (the "Act") and then only against receipt of a letter
from such person in which such person represents that he is acquiring the
Warrants or Warrant Shares for his own account for investment purposes and not
with a view to distribution, and in which such person agrees to comply with the
provisions of this Section 8 with respect to any resale or other disposition of
such securities; or
b. to any person upon delivery of a prospectus then meeting
the requirements of the Act relating to such securities and the offering thereof
for such sale or disposition.
9. Legend. This Warrant and the shares of Common Stock to be
issued upon exercise of this Warrant shall not be registered under the Act,
except as otherwise herein expressly provided. Subject to an effective
registration statement under the Act as provided for in Section 10 hereof, all
certificates representing Common Stock issued upon exercise of this Warrant
shall bear a restrictive legend containing the following language:
THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF 1933.
THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
SOLD, TRANSFERRED, MADE SUBJECT TO A SECURITY INTEREST,
PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF UNLESS AND
UNTIL REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF 1933, OR
AN OPINION OF COUNSEL FOR THE COMPANY IS RECEIVED THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
7
<PAGE>
10. Registration Under the Securities Act of 1933.
The shares of common stock issuable upon exercise of this
Warrant ("Registrable Securities") shall be included in the first registration
statement (other than in connection with a merger or pursuant to Form S-8 or
other comparable Form) filed by the Company with the Securities and Exchange
Commission in order that such shares shall be registered for sale to the public,
as hereinafter provided for.
If the Company at any time proposes to register any of its
securities under the 1933 Act (other than pursuant to Form S-4, S-8 or other
comparable forms), the Company shall include the Registerable Securities in such
registration statement. The Company shall at such time give prompt written
notice to the Holder of its intention to effect such registration and of such
Holder's rights under such proposed registration, and upon the request of such
Holder delivered to the Company within twenty (20) days after giving of such
notice (which request shall specify the Registerable Securities intended to be
disposed of by such Holder and the intended method of disposition thereof), the
Company shall include such Registerable Securities held by each such Holder
requested to be included in such registration; provided, however, that if, at
any time after giving such written notice of the Company's intention to register
any of the Holder's Registerable Securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay the
registration of such Registerable Securities, the Company may give written
notice of such determination to each Holder and thereupon shall be relieved of
its obligation to register any Registerable Securities issued or issuable in
connection with such registration (but not from its obligation to pay
registration expenses in connection therewith or to register the Registerable
Securities in a subsequent registration); and in the case of a determination to
delay a registration shall thereupon be permitted to delay registering any
Registerable Securities for the same period as the delay in respect of
securities being registered for the Company's own account. The Holder shall not
be required to give any notice in connection with the Company's next public
offering, in which case, the Registerable Securities shall be automatically
included in the Registration Statement.
8
<PAGE>
The Holder will cooperate with the Company in all respects in
connection with such registration and the provisions of this Section 10 hereof,
including, timely supplying all information reasonably requested by the Company
and executing and returning all documents reasonably requested in connection
with the registration and sale of the Registerable Securities.
If and whenever the Company is required by any of the
provisions of this Section 10 to use its best efforts to effect the registration
of any of the Registerable Securities under the 1933 Act, the Company shall
(except as otherwise provided in this Section 10), as expeditiously as possible:
(i) prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement and shall use its best
efforts to cause such registration statement to become effective and remain
current until all the Registerable Securities are sold or become capable of
being publicly sold without registration under the 1933 Act.
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the 1933 Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Holder or Holders of such securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities from time to time in connection with a registration statement
pursuant to Rule 415 of the Act);
9
<PAGE>
(iii) furnish to the Holder such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the 1933 Act, and such other documents, as the Holder may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Holder;
(iv) use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each Holder shall reasonably request, and
do any and all other acts and things which may be necessary or advisable to
enable such Holder to consummate the public sale or other disposition in such
jurisdiction of the securities owned by such Holder, except that the Company
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process;
10
<PAGE>
(v) use its best efforts to list such securities on any
securities exchange on which any securities of the Company are then listed, if
the listing of such securities is then permitted under the rules of such
exchange;
(vi) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(vii) notify the Holder of Registerable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; and
(viii) furnish, at the request of the Holder on the date such
Registerable Securities are delivered to the underwriters for sale pursuant to
such registration or, if such Registerable Securities are not being sold through
underwriters, on the date the registration statement with respect to such
Registerable Securities becomes effective, (i) an opinion, dated such date, of
the counsel representing the Company for the purpose of such registration,
addressed to the underwriters, if any, and to the Holder making such request,
covering such legal matters with respect to the registration in respect of which
such opinion is being given as the Holder of such Registerable Securities may
reasonably request and are customarily included in such an opinion and (ii)
letters, dated, respectively, (1) the effective date of the registration
11
<PAGE>
statement and (2) the date such Registerable Securities are delivered to the
underwriters, if any, for sale pursuant to such registration from a firm of
independent certified public accountants of recognized standing selected by the
Company, addressed to the underwriters, if any, and to the Holder making such
request, covering such financial, statistical and accounting matters with
respect to the registration in respect of which such letters are being given as
the Holder of such Registerable Securities may reasonably request and are
customarily included in such letters.
The Holder agrees that the Holder shall not sell or transfer
any of the Registerable Securities for a period of twelve months from the
Effective Date of any registration statement in which such shares are included,
in the event that the shares of the Company being included in such registration
statement are being underwritten by one or more underwriters, unless such sale
or transfer by the Holder shall be made with the prior written approval of the
managing underwriter of such offering by the Company, provided that such
managing underwriter shall be required to exercise its discretionary authority
respecting such approval in a manner that grants to each holder of the Company's
warrants of even date and expiring March 31, 2001 the same rights and privileges
with respect to any approval to transfer or sell such shares. In connection with
the filing of any such registration statement, and as a condition of the
inclusion therein of the Registrable Securities, the Holder shall confirm in
writing the Holder's acceptance of the foregoing condition, in such form as the
underwriter thereof may reasonably require.
12
<PAGE>
All expenses incurred in any registration of the Holder's
Registerable Securities hereunder shall be paid by the Company, including,
without limitation, printing expenses, fees and disbursements of counsel for the
Company, expenses of any audits to which the Company shall agree or which shall
be necessary to comply with governmental requirements in connection with any
such registration, all registration and filing fees for the Holder's
Registerable Securities under federal and State securities laws ; provided,
however, the Company shall not be liable for (a) any discounts or commissions to
any underwriter; (b) any stock transfer taxes incurred with respect to
Registerable Securities sold in the Offering or (c) the fees and expenses of
counsel for any Holder, provided that the Company will pay the costs and
expenses of Company counsel if the Company's counsel is representing any or all
selling security holders, if any.
In the event any Registerable Securities are included in a
registration statement pursuant to this Warrant:
Without limitation of any other indemnity provided to the
Holder, either in connection with the proposed public offering or otherwise, to
the extent permitted by law, the Company shall indemnify and hold harmless the
Holder, the affiliates, officers, directors and partners of the Holder, any
underwriter (as defined in the 1933 Act) for such Holder, and each person, if
any, who controls such Holder or underwriter (within the meaning of the 1933 Act
or the Securities Exchange Act of 1934 (the "Exchange Act"), against any losses,
claims, damages or liabilities (joint or several) to which they may become
subject under the 1933 Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made, (iii) any violation or alleged violation
by the Company of the 1933 Act, the Exchange Act, or (iv) any state securities
law or any rule or regulation promulgated under the 1933 Act, the Exchange Act
or any state securities law, and the Company shall reimburse the Holder,
affiliate, officer or director or partner, underwriter or controlling person for
any legal or other expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable to the Holder in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any the Holder or any other officer, director or controlling
person thereof.
13
<PAGE>
The Holder shall indemnify and hold harmless the Company, its
affiliates, its counsel, officers, directors, shareholders and representatives,
any underwriter (as defined in the 1933 Act) and each person, if any, who
controls the Company or the underwriter (within the meaning of the 1933 Act
against any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the 1933 Act, the Exchange Act or any state
securities law, and the Holder shall reimburse the Company, the affiliates,
officers or directors or partners, underwriters or controlling persons for any
legal or other expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; insofar as such
losses, claims, damages or liabilities (or actions and respect thereof) arise
out of or are based upon any statements or information provided by the Holder to
the Company in connection with the offer or sale of Registerable Securities.
14
<PAGE>
Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action (including any governmental action),
such indemnified party shall, if a claim in respect thereof is to be made
against any indemnifying party hereunder deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in and if the indemnifying party agrees in writing that
it will be responsible for any costs, expenses, judgments, damages and losses
incurred by the indemnified party with respect to such claim, jointly with any
other indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if the indemnified party
reasonably believes that representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall relieve such indemnifying party of any liability to the
indemnified party hereunder only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than hereunder.
15
<PAGE>
If the indemnification provided for hereunder is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and the indemnified party on the other hand in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations. The
relevant fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Notwithstanding
the foregoing, the amount the Holder shall be obligated to contribute pursuant
to the Agreement shall be limited to an amount equal to the proceeds to the
Holder of the Registerable Securities sold pursuant to the registration
statement which gives rise to such obligation to contribute (less the aggregate
amount of any damages which the Holder has otherwise been required to pay in
respect of such loss, claim, damage, liability or action or any substantially
similar loss, claim, damage, liability or action arising from the sale of such
Registerable Securities).
16
<PAGE>
The indemnification provided hereby shall be a continuing
right to indemnification and shall survive the registration and sale of any
Registerable Securities by any person entitled to indemnification hereunder and
the expiration or termination of this Warrant.
11. Notices.
All communications hereunder shall be in writing and shall be
mailed by first class mail, postage prepaid, or telegraphed or telexed with
confirmation of receipt or delivered by hand or by overnight delivery service,
(a) If to the Company, at:
Index Stock Photography, Inc.
126 Fifth Avenue
New York, New York 10011
Att: Bahar Gidwani, Chief Executive Officer
with a copy to:
Schneck Weltman Hashmall & Mischel LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Arthur M. Schneck, Esq.
or at such other address as may have been furnished in writing to the Holder
of the Registrable Securities at the time outstanding, or
(b) if to the Holder of any Registrable Securities, to the
address of such Holder as it appears in the stock or warrant ledger of the
Company.
Any notice so addressed, when mailed by registered or
certified mail shall be deemed to be given three days after so mailed, when
telegraphed or telexed shall be deemed to be given when transmitted, or when
delivered by hand or overnight shall be deemed to be given when delivered.
17
<PAGE>
12. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of New York,
without giving effect to the conflicts of law principles thereof or the actual
domicile of the parties. The Company and the Holder hereby consent to the
jurisdiction of the Courts of the State of New York and the United States
District Courts situated therein in connection with any action concerning the
provisions of this Warrant.
13. Invalidity of Provisions. If any provision of this Warrant
is or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
14. Headings. The headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provisions hereof.
15. Successors. All the covenants and provisions of this
Warrant by or for the benefit of the Holder shall inure to the benefit of his
successors and assigns hereunder.
16. Termination. This Warrant will terminate on any earlier
date when it has been entirely exercised and all the Shares issuable upon
exercise of this Warrant have been resold to the public.
18
<PAGE>
17. Entire Agreement; Amendment; Waiver. This Warrant sets
forth the entire agreement and understanding between the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them. This Warrant
may be amended, the Company may take any action herein prohibited or omit to
take any action herein required to be performed by it, and any breach of any
covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or waiver of the Holder. No course of
dealing between or among any persons having any interest in this Warrant will be
deemed effective to modify, amend or discharge any part of this Warrant or any
rights or obligations of any person under or by reason of this Warrant.
INDEX STOCK PHOTOGRAPHY, INC.
By:
----------------------------------
Name: Bahar Gidwani
Title: Chief Executive Officer
19
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
ASSIGNMENT FORM
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto_________________________________________________________________
_______________________________________________________________________________
(Name and address of assignee must be printed or typewritten) the rights of the
undersigned represented by this Warrant, to the extent of ( ) shares of Common
Stock, $.01 par value, of Index Stock Photography, Inc. (the "Company") hereby
irrevocably constituting and appointing Attorney to make such transfer on the
books of the Company, with full power of substitution in the premises.
Dated:__________________________________ , 199 ______________________________
Signature of Registered Holder
Signature Guaranteed:
_________________________
Note: The above signature must correspond with the
name as it appears upon the front page of
this Warrant in every particular, without
alteration or enlargement or any change
whatever.
20
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
PURCHASE FORM
Index Stock Photography, Inc.
The undersigned hereby irrevocably elects to exercise the
right of purchase represented by this Warrant for, and to purchase hereunder,
shares of Common Stock, $.01 par value per share, of Index Stock Photography,
Inc. (the "Shares") provided for herein, and requests that certificates for the
Shares be issued in the name of:_______________________________________________
_______________________________________________________________________________
(Please print name, address and social security number) and, if said number of
Shares shall not be all the Share purchasable hereunder, that a new Warrant for
the balance of the Shares purchasable under this Warrant be registered in the
name of the undersigned Warrantholder or his Assignee as below indicated and
delivered to the address stated below.
Dated:____________________________ , 199__ ______________________________
Signature of Registered Holder
Name of Warrantholder or Assignee:____________________________________________
(Please print)
Address:__________________________________________________________________
__________________________________________________________________________
Signature:________________________________________________________________
Signature Guaranteed:
_________________________
Note: The above signature must correspond with the
name as it appears upon the front page of
this Warrant in every particular, without
alteration or enlargement or any change
whatever, unless this Warrant has been
assigned.
21
<PAGE>
INDEX STOCK PHOTOGRAPHY, INC.
1992 NON-QUALIFIED STOCK OPTION PLAN
(as amended May 30, 1996)
1. Purpose. The purpose of this stock option plan ("Plan") is to
provide a means whereby INDEX STOCK PHOTOGRAPHY, INC. (the "Company") may,
through the grant of incentive stock options to Key Persons, as defined below,
attract and retain persons of ability to perform services for the Company and
motivate such persons to exert their best efforts on behalf of the Company and
any Subsidiary. As used herein the term "Subsidiary" shall mean any corporation
which at the time an option is granted under this Plan qualifies as a subsidiary
of the Company under the definition of "subsidiary corporation" contained in
Section 425(f) of the Internal Revenue Code of 1986, as amended from time to
time (the "Code"), or any similar provision hereafter enacted, except that such
term shall not include any corporation which is classified as a foreign
corporation pursuant to Section 7701 of the Code. The term "Key Persons" means
those persons (including officers, directors who are not also employees,
advisory directors or consultants) performing services for the Company or of any
Subsidiary, who, in the judgment of the Committee referred to in Section 3 below
are considered especially important to the future of the Corporation. The term
"stock options" means options to purchase Common Stock ($.0001 par value) of the
Company ("Stock").
<PAGE>
2. Shares Subject to the Plan. Options may be granted by the
Company from time to time to Key Persons to purchase an aggregate of 300,000
shares of Stock, and such amounts of shares shall be reserved for options
granted under the Plan (subject to adjustment as provided in Section 5.8). The
shares issued upon exercise of options granted under the Plan may be authorized
and unissued shares or shares held by the Company in its treasury. If any option
granted under the Plan shall terminate, expire or, with the consent of the
optionee, be cancelled as to any shares, new options may hereafter be granted
covering such shares.
3. Administration of the Plan. The Plan shall be administered by
the Board of Directors of the Company ("Board") or at the option of the Board by
a Compensation and Benefits Committee (the "Committee") of the Board consisting
of not less than one member appointed by the Board and serving at the Board's
pleasure. Any vacancy occurring in the membership of the Committee shall be
filled by appointment by the Board. References made hereafter in this Plan to
the "Committee" shall be deemed to refer to the Board or the Committee, as the
case may be.
The Committee may interpret the Plan, prescribe, amend, and
rescind any rules and regulations necessary or appropriate for the
administration of the Plan, or for the continued qualification of any stock
options granted thereunder and make such other determinations and take such
other action as it deems necessary or advisable, except as otherwise expressly
reserved to
the Board in the Plan. Any interpretation, determination or other action made or
taken by the Committee shall be final, binding and conclusive.
- 2 -
<PAGE>
4. Grant of Options. Subject to the provisions of the Plan, the
Committee shall (a) determine and designate from time to time those Key Persons
to whom options are to be granted and the number of shares of Stock to be
optioned to each employee; (b) authorize the granting of stock options, (c)
determine the number of shares subject to each option; and (d) determine the
time or times when and the manner in which each option shall be exercisable and
the duration of the exercise period; provided, however, that no option shall be
granted after the expiration of ten years from the effective date of the Plan
specified in Section 8, below.
5. Terms and Conditions of Options. Each option granted under
the Plan shall be evidenced by an agreement, in a form approved by the
Committee. Such agreement shall be subject to the following express terms and
conditions and to such other terms and conditions as the Committee may deem
appropriate:
5.1 Option Period. Each option agreement shall specify the
period for which the option thereunder is granted and shall provide that the
option shall expire at the end of such period. The Committee may extend such
period. In no case shall such period, including any such extensions, exceed ten
years from the date of grant.
- 3 -
<PAGE>
5.2 Option Price. The option price per share shall be determined
by the Committee at the time any option is granted, and shall be not less than
the fair market value (but in no event less than the par value) of one share of
Stock on the date the option is granted, as determined by the Committee. Fair
market value as used herein shall be:
5.2.1 If shares of Stock shall be traded on an exchange or
over-the-counter market, the mean between the high and low sales prices of Stock
on such exchange or over-the-counter market on which such shares shall be traded
on that date, or if such exchange is closed or if no shares shall have traded on
such date, on the last preceding date on which such shares shall have traded.
5.2.2 If shares of Stock shall not be traded on an exchange or
over-the-counter market, the value equal to book value of such shares as of the
end of the most recent fiscal quarter of the Company as determined by the
Company's regularly employed independent accountants, unless the Committee shall
determine that an alternative valuation is more appropriate under the
circumstances.
- 4 -
<PAGE>
5.3 Payment of Purchase Price upon Exercise. Each option shall
provide that the purchase price of the shares as to which an option shall be
exercised shall be paid to the Company at the time of exercise either in cash or
in such other consideration as the Committee deems appropriate including, but
not limited to, Stock already owned by the optionee having a total fair market
value, as determined by the Committee, equal to the purchase price, or a
combination of cash and Stock having a total fair market value, as so
determined, equal to the purchase price.
5.4 Exercise in the Event of Death. If an optionee shall die his
options may be exercised, to the extent that the optionee shall have been
entitled to do so on the date of his death by the person or persons to whom the
optionee's right under the option pass by will or applicable law, or if no such
person has such right, by his executors or administrators, at any time, or from
time to time, but not later than the expiration date specified in paragraph 5.1
of this Section 5 or one year after the optionee's death, whichever date is
earlier.
5.5 Nontransferability. No option granted under the Plan shall
be transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an option shall be exercisable only by him.
5.6 Investment Representation. Each option agreement may provide
that, upon demand by the Committee for such a representation, the optionee (or
any person acting under paragraph 5.4) shall deliver to the Committee at the
time of any exercise of an option or portion thereof a written representation
that the shares to be acquired upon such exercise are to be acquired for
investment and not for resale or with a view to the distribution thereof. Upon
such demand, delivery of such representation prior to the delivery of any shares
- 5 -
<PAGE>
issued upon exercise of an option and prior to the expiration of the option
period shall be a condition precedent to the right of the optionee or such other
person to purchase any shares.
5.7 Adjustments in Event of Change in Common Stock. In
----------------------------------------------
the event of any change in the Common Stock of the Company by
reason of any stock dividend, recapitalization, reorganization,
merger, consolidation, split-up, combination or exchange of
shares, or any rights offering to purchase Common Stock at a
price substantially below fair market value, or of any similar
change affecting the Common Stock, the number and kind of shares
which thereafter may be optioned and sold under the Plan and the
number and kind of shares subject to option in outstanding option
agreements and the purchase price per share thereof shall be
appropriately adjusted consistent with such change in such manner
as the Committee may deem equitable to prevent substantial
dilution or enlargement of the rights granted to, or available
for, participants in the Plan.
5.8 No Rights as Shareholder. No optionee shall have any rights
as a shareholder with respect to any shares subject to his option prior to the
date of issuance to him of a certificate or certificates for such shares.
6. Compliance With Other Laws and Regulations. The Plan, the
grant and exercise of options thereunder, and the obligation of the Company to
sell and deliver shares under such options, shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required. Moreover, no option may be
exercised if its exercise or the receipt of Stock pursuant thereto would be
contrary to applicable laws.
- 6 -
<PAGE>
7. Amendment and Discontinuance. The Board of Directors of the
Company may from time to time amend, suspend or discontinue the Plan; provided,
however, that, subject to the provisions of paragraph 5.7 no action of the Board
of Directors or of the Committee may (i) increase the number of shares reserved
for options pursuant to Section 2, (ii) permit the granting of any option at the
option price less than the determined in accordance with paragraph 5.2, or (iii)
permit the granting of options which expire beyond the period provided for in
paragraph 5.1. Without the written consent of an optionee, no amendment or
suspension of the Plan shall alter or impair any option previously granted to
him under the Plan.
8. Effective Date of the Plan. The effective date of
the Plan shall be February 1, 1992.
9. Name. The Plan shall be known as the
"Index Stock Photography, Inc. 1992 Non-Qualified Stock Option
Plan."
10. Notices. Any notice hereunder shall be in writing and sent
by certified mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to the Company
shall be sent to it at its office, 126 Fifth Avenue, New York, New York 10011,
facsimile number (212) 633-1914, attention: Mr. Bahar Gidwani, and when
addressed to the Committee shall be sent to it at 126 Fifth Avenue, New York,
New York 10011, subject to the right of either party to designate at any time
hereafter in writing some other address, facsimile number or person to whose
attention such notice shall be sent.
11. Headings. The headings preceding the text of
Sections and subparagraphs hereof are inserted solely for
convenience of reference, and shall not constitute a part of this
Plan nor shall they affect its meaning, construction or effect.
- 8 -
<PAGE>
MICROSOFT
September 26, 1995
Dear Microsoft Network Content Provider:
We are excited to be distributing the first Blackbird beta release that will
allow you to publish your titles on MSN. Enclosed with this letter is a
Blackbird beta agreement that needs to be signed and returned to the indicated
address or fax number. When we receive your completed NDA, you will be mailed a
Blackbird beta kit and will automatically receive all subsequent beta updates.
Make sure you enter a primary MSN user ID on the agreement. We'll give this user
ID security rights to publish Blackbird titles to the MSN data center and access
to the appropriated Blackbird support forums. You can request additional IDs be
granted this access by mailing the appropriate user IDs to
"[email protected]."
If you attended the Microsoft Interactive Media Conference, you have likely
already received the beta agreement. If you have already returned the Blackbird
beta agreement, then you need take no further action - the Blackbird beta kit
will be automatically shipped to you within the next week. If you did not yet
receive and return the Blackbird beta agreement, please take a moment to do so
now.
The Blackbird support forum, staffed by MS Product Support Engineers, can be
accessed by the go word "BBIRD" on MSN (it is located in Categories, Computer
Hardware and Software Companies, Software Companies, Microsoft, The Microsoft
Network, The Microsoft Network Beta Forum). When you receive the beta kit, it
will include instructions on how to publish your title on MSN and how to report
bugs.
For now, only your designated MSN User ID(s) can view your published Blackbird
titles. In the middle of October, we will begin a broad end-user beta that will
allow other MSN users to view Blackbird titles. You will then be able to show
off your own Blackbird title to a large number of MSN users. We are going to
publicize the most exciting new Blackbird titles on MSN and at tradeshows and in
press meetings to get more users viewing them - so we get better testing and you
get more viewers of your titles. Keep your eye on the Blackbird general
information forum for more details!
We expect some of the most exciting content on MSN this fall to be new Blackbird
titles. Hopefully, one will be yours! With a good start now, you can have final
production quality titles running on MSN when we release the commercial version
of Blackbird in January. And keep an eye on the Blackbird forum for information
about publishing your titles for other Internet users in early 1996.
Thanks again for your continued support. We look forward to working with you as
a Blackbird beta site!
The Blackbird Team
Microsoft Corporation
<PAGE>
MICROSOFT CORPORATION NON-DISCLOSURE AGREEMENT
(PRE-RELEASE PRODUCT-GENERAL)
IMPORTANT: PLEASE COMPLETE THIS FORM AND RETURN IT TO MICROSOFT AT THE
ADDRESS BELOW:
Upon receipt by Microsoft Corporation ("MS") of this Agreement, signed
and completed by the individual or organization indicated below ("Recipient"),
MS may elect, at MS' sole discretion, to provide Recipient with a pre-release
copy of the MS product MSN Software Development Kit, and related documentation
and information (collectively the "Product"). MS may, in its sole discretion,
also provide further pre-releases of the Product or related information to
Recipient hereunder, in which case such further pre-releases and related
information shall also be covered hereunder as "Product".
1, GRANT OF LICENSE.
(a) MS grants to Recipient a limited, non-exclusive, nontransferable,
royalty-free license to use up to five copies of the executable Product code on
CPU's residing at Recipient's premises solely to test the compatibility of
Recipient's application or other product(s) ("Application") which operate in
conjunction with the Product and to evaluate the Product for the purpose of
providing feedback thereon to MS. All other rights are reserved to MS. Recipient
shall not rent, lease, sell, sublicense, assign, or otherwise transfer the
Product, including any accompanying printed materials. Recipient may not reverse
engineer, decompile or disassemble the Product except to the extent that this
restriction is expressly prohibited by applicable law. MS and its suppliers
shall retain title and all ownership rights to the Product.
(b) Recipient agrees to provide reasonable feedback to MS, including
but not limited to beta reports, usability, bug reports and test results, with
respect to the Product testing. Recipient will use reasonable efforts to review
and comment on all documentation supplied. All bug reports, test results and
other feedback made by Recipient shall be the property of MS and may be used by
MS for any purpose. Due to the nature of the development work, MS is not certain
as to when errors or discrepancies in the Products may be corrected.
(c) Recipient may disclose the Product only to its employees who have a
need to know in order to accomplish the purposes identified in Section l(a), and
such employees' use of the Product shall take place solely at Recipient's site.
Recipient will have executed appropriate written agreements with its employees
sufficient to enable it to comply with the terms of this Agreement.
<PAGE>
2. REDISTRIBUTABLE COMPONENTS. MS further grants to recipient the
following non-exclusive, nontransferable, royalty-free rights with respect to
the sample and redistributable code listed in the readme.txt file.
(a) Subject to Section 2(b) below, to reproduce and distribute test
version of Recipient's Application for use on The Microsoft Network ("MSN")
created using the Product to MSN users provided you identify such Application as
"BETA" and that you comply with Section 2(c), below.
(b) To modify the sample code provided with the Product and to
reproduce and distribute such modifications in object code form for use on The
Microsoft Network to MSN users provided you identify such Application as "BETA"
and that you comply with Section 2(c), below.
(c) if you redistribute your Application as allowed under this
Agreement, you must: (1) distribute the Product only in conjunction with and as
part of your Application which is designed, developed and tested to operate on
MSN; (2) not make any statements to the effect or which imply that your
Application is "certified" by MS or that its performance is guaranteed by MS;
(3) not use MS' name, logo, or trademarks to market your Application; and (4)
agree to indemnify, hold harmless, and defend MS and its suppliers from and
against any claims or lawsuits, including attorney's fees, that arise or result
from your distribution of the Application.
(d) The Product shall not be used, modified, reproduced except as
provided above and you agree to destroy or erase the copy of the Product upon
MS' release of the Product in final form.
3. TERM OF AGREEMENT. The term of this Agreement shall commence on the
Effective Date and shall continue until terminated by MS in writing at any time,
with or without cause. This Agreement will terminate without notice upon the
commercial release of the Product. Upon the termination of this Agreement,
Recipient shall promptly return to MS. or certify destruction of, all full or
partial copies of the Product and related materials provided by MS. Section 6
shall survive termination or expiration of this Agreement with respect to any
information that has not been made public by MS as of the commercial release of
the Product.
4. COST OF TESTING. There is no charge to Recipient for testing of the
Product. MS shall bear all transportation expenses relating to the shipment of
the Product to Recipient's place of business and Recipient will pay any return
transportation expenses.
<PAGE>
5. PRODUCT MAINTENANCE. MS is not obligated to provide maintenance or
updates to Recipient for the Product. However, any maintenance or updates
provided by MS shall be covered by this Agreement.
6. CONFIDENTIALITY. The Product and related information is proprietary
and confidential information to MS and its suppliers. Recipient agrees not to
disclose or provide the Product, documentation, or any related information
(including the Product features or the results of use or testing) to any third
party or use the Product for any purpose other than as provided in this
Agreement. However, Recipient may disclose confidential information in
accordance with judicial or other governmental order, provided Recipient shall
give MS reasonable written notice prior to such disclosure and shall comply with
any applicable protective order or equivalent. Further, Recipient shall not be
obligated to maintain the confidentiality of information which Recipient can
prove (1) is already known to Recipient without an obligation to maintain the
same as confidential; (2) becomes publicly known through no wrongful act of
Recipient; (3) is rightfully received from a third party without breach of an
obligation of confidentiality owed to MS; or (4) is independently developed by
Recipient. This provision shall survive the termination or expiration of this
Agreement with respect to any information that has not been made public by MS as
of the commercial release of the Product.
7. DISCLAIMER OF WARRANTY. Product is deemed accepted by Recipient. The
Product constitutes pre-release code and may be changed substantially before
commercial release. The PRODUCT IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY
KIND. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, MICROSOFT FURTHER
DISCLAIMS ALL WARRANTIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT. THE
ENTIRE RISK ARISING OUT OF THE USE OR PERFORMANCE OF THE PRODUCT AND
DOCUMENTATION REMAINS WITH RECIPIENT. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, IN NO EVENT SHALL MICROSOFT OR ITS SUPPLIERS BE LIABLE FOR ANY
CONSEQUENTIAL, INCIDENTAL, DIRECT, INDIRECT, SPECIAL, PUNITIVE, OR OTHER DAMAGES
WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY
LOSS) ARISING OUT OF THIS AGREEMENT OR THE USE OF OR INABILITY TO USE THE
PRODUCT, EVEN IF MICROSOFT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
BECAUSE SOME STATES/JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR LIMITATION OF
LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT
APPLY TO RECIPIENT.
<PAGE>
8. GOVERNING LAW; ATTORNEYS FEES. This Agreement shall be governed by
the laws of the State of Washington and Recipient further consents to
jurisdiction by the state and federal courts sitting in the State of Washington.
If either MS or Recipient employs attorneys to enforce any rights arising out of
or relating to this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees.
9. U.S. GOVERNMENT RESTRICTED RIGHTS. The Product is provided with
RESTRICTED RIGHTS. Use, duplication, or disclosure by the Government is subject
to restrictions as set forth in subparagraph (c)(1)(ii) of The Rights in
Technical Data and Computer Software clause of DFARS 252.227-7013 or
subparagraphs (c)(i) and (2) of the Commercial Computer Software -- Restricted
Rights at 48 CFR 52.227-19, as applicable. Manufacturer is Microsoft
Corporation, One Microsoft Way, Redmond, WA 98052-6399.
10. EXPORT RESTRICTIONS. Recipient acknowledges that the Product
licensed hereunder is subject to the export control laws and regulations of the
U.S.A., and any amendments thereof. Recipient confirms that with respect to the
Product, it will not export or re-export it, directly or indirectly, either to
(i) any countries that are subject to U.S.A export restrictions (currently
including, but not necessarily limited to, Cuba, the Federal Republic of
Yugoslavia (Serbia and Montenegro), Haiti, Iran, Iraq, Libya, North Korea, South
Africa (military and police entities), and Syria), (ii) any end user who
Recipient knows or has reason to know will utilize them in the design,
development or production of nuclear, chemical or biological weapons; or (iii)
any end user who has been prohibited from participating in the U.S.A. export
transactions by any federal agency of the U.S.A. government. Recipient further
acknowledges that the Product may include technical data subject to export and
re-export restrictions imposed by U.S.A. law.
11. ENTIRE AGREEMENT. This Agreement constitutes the complete and
exclusive agreement between MS and Recipient with respect to the subject matter
hereof, and supersedes all prior oral or written understandings, communications
or agreements not specifically incorporated herein. This Agreement may not be
modified except in a writing duly signed by an authorized representative of MS
and Recipient.
12. PARTIES BOUND. If "Company Name" or a company address is filled in
below, then the individual signing this Agreement represents that he/she has
authority to execute this agreement on behalf of such company and agrees that
Product (and any copies thereof) shall remain on the company premises, unless
otherwise agreed by MS.
<PAGE>
IN WITNESS WHEREOF. Recipient has caused this Agreement to he executed
by its duly authorized representative.
- ------------------------------------------------
Beta Site ID
- ------------------------------------------------
Company Name
- ------------------------------------------------
Alpha Site Contact/Tester (Recipient)
- ------------------------------------------------
Company Authorized Representative's Signature
- ------------------------------------------------
Print Authorized Signature and Title
- ------------------------------------------------
Physical Address (No P.O. Boxes)
- ------------------------------------------------
City, State, Zip
- ------------------------------------------------
Phone Number
- ------------------------------------------------
Microsoft Network Member ID
- ------------------------------------------------
Date
- ---------------------------
RETURN TO:
WPG Beta Group Address.
Microsoft Corporation
Attn:
One Microsoft Way
Redmond, WA 98052-6399
- ---------------------------
<PAGE>
PHOTODISC, INC.
&
INDEX STOCK PHOTOGRAPHY, INC.
MASTER LICENSING/DISTRIBUTION AGREEMENT
November 1993
<PAGE>
TABLE OF CONTENTS
RECITALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
2. Agreement and Relationship of Parties. . . . . . . . . . . 3
-------------------------------------
2.1 Agreement . . . . . . . . . . . . . . . . . . . . . . 3
---------
2.2 When Sublicense is Effective. . . . . . . . . . . . . 4
----------------------------
2.3 Rights Held by Index Stock under Photographer
---------------------------------------------
Agreements; Assignment of Certain Rights under
----------------------------------------------------------
Photographer Agreements. . . . . . . . . . . . . . . . . . 4
-----------------------
2.4 Nature of Relationship . . . . . . . . . . . . . . . . 4
----------------------
2.5 Agreement Photodiscs Sold by Index Stock . . . . . . . 4
----------------------------------------
3. Royalties . . . . . . . . . . . . . . . . . . . . . . . . 4
---------
3.1 Royalty Amounts and Exclusions. . . . . . . . . . . . 4
------------------------------
3.2 Royalty Reporting and Payment. . . . . . . . . . . . . 4
-----------------------------
3.3 Royalty Obligation Survives Termination . . . . . . . 5
--------------------------------------
4. Production of Agreement Photodiscs. . . . . . . . . . . . .5
----------------------------------
4.1 Delivery of Photographs. . . . . . . . . . . . . . . . 5
-----------------------
4.2 Consulting Assistance . . . . . . . . . . . . . . . . .6
---------------------
4.3 Duties of PhotoDisc. . . . . . . . . . . . . . . . . . 6
--------------------
4.4 Abandonment of Agreement Photodisc . . . . . . . . . . 7
----------------------------------
5 Intellectual Property Rights. . . . . . . . . . . . . . . 7
----------------------------
6. Continuing Duties of the Parties. . . . . . . . . . . . . .7
--------------------------------
6.1 Continuing Duties of Index Stock. . . . . . . . . . . .7
--------------------------------
6.2 Continuing Duties of PhotoDisc . . . . . . . . . . . . 8
------------------------------
i
<PAGE>
7. Representations and Warranties. . . . . . . . . . . . 9
------------------------------
7.1 Representations and Warranties of Index Stock. . . 9
----------------------------------------------
7.2 Representations and Warranties of PhotoDisc. . . . 9
-------------------------------------------
8. Confidentiality . . . . . . . . . . . . . . . . . . . 10
---------------
8.1 Covenant . . . . . . . . . . . . . . . . . . . . 10
--------
8.2 Confidential Information Furnished by PhotoDisc . 10
-----------------------------------------------
9. Cross-Indemnification . . . . . . . . . . . . . . . . 10
---------------------
9.1 Indemnification Covenant . . . . . . . . . . . . .10
------------------------
9.2 Duty of Index Stock to Further Replace Agreement
-------------------------------------------------
Images. . . . . . . . . . . . . . . . . . . . . . . . 11
------
10. Term and Termination. . . . . . . . . . . . . . . . . 11
--------------------
10.1 Term. . . . . . . . . . . . . . . . . . . . . . 11
----
10.2 Termination for Default. . . . . . . . . . . . . 11
------------------------
11. Miscellaneous . . . . . . . . . . . . . . . . . . . . 12
-------------
11.1 Binding Effect and Assignment. . . . . . . . . . 12
-----------------------------
11.2 Expenses . . . . . . . . . . . . . . . . . . . . 12
---------
11.3 Entire Agreement . . . . . . . . . . . . . . . . 12
----------------
11.4 Amendments; Waivers. . . . . . . . . . . . . . . 13
-------------------
11.5 Enforceability . . . . . . . . . . . . . . . . . 13
--------------
11.6 Notices. . . . . . . . . . . . . . . . . . . . 13
-------
11.7 Governing Law and Construction. . . . . . . . . 14
------------------------------
11.8 Counterparts. . . . . . . . . . . . . . . . . . 14
-----------
11.9 Attorneys Fees. . . . . . . . . . . . . . . . . 14
--------------
EXHIBIT A Title Development Order and Specification(s) . . . 15
EXHIBIT B Form of Index Stock Photographer's Agreement . . . 19
ii
<PAGE>
PHOTODISC, INC. & INDEX STOCK PHOTOGRAPHY, INC.
MASTER LICENSING/DISTRIBUTION AGREEMENT
This PHOTODISC, INC. & INDEX STOCK PHOTOGRAPHY, INC. MASTER
LICENSING/DISTRIBUTION AGREEMENT (this "Agreement")is dated November , 1993.
The parties to this Agreement ("Parties") are PhotoDisc, Inc. a Washington
Corporation ("PhotoDisc"), and Index Stock Photography, Inc., a Delaware
Corporation ("Index Stock").
RECITALS
A. PhotoDisc publishes and sells artwork and digitized images on CD-ROM
products and digital distribution unlocking systems, composed primarily of
digitized photographic images. These products may be produced in multiple
formats and/or languages.
B. PhotoDisc wishes to contract with Index Stock to license images for
PhotoDisc's use on certain PhotoDisc products.
C. PhotoDisc and Index Stock, on the terms and conditions provided herein,
have agreed that Index Stock will provide limited usage/licensing rights to
PhotoDisc in return for a royalty.
AGREEMENT
1. Definitions.
1.1 "Agreement Images" means the photographic images accepted by PhotoDisc
and offered by Index Stock pursuant to the terms of this Agreement.
1.2 "Agreement Photodiscs" means CD-ROM disks published by PhotoDisc
consisting in whole or in part of Agreement Images.
1.3 "CD-ROM Collection" as used on an order means PhotoDisc's rights to
sublicense and distribute to its customers a compilation consisting in whole or
in part of Agreement Images assembled together in a CD-ROM volume or collection,
usually having an overall theme. CD-ROM Collection rights could be granted for
distribution in either MultiMedia or Print form.
1
<PAGE>
1.4 "Exclusive" means rights in the holder to prohibit any other party,
including licensors or sublicensors of the rights, from granting the same rights
to others or using the rights themselves.
1.5 "Minimum Royalty" means the minimum annual royalty amount PhotoDisc
must pay to retain rights to produce the Agreement Photodiscs to which the
royalty applies. Failure to pay the Minimum Royalty shall, at Index Stock's
option, result in a forfeiture of such rights as of the end of the year in which
the Minimum Royalty was due; provided, that if any such failure should result in
termination of PhotoDisc's production rights, PhotoDisc will cease production of
the applicable Agreement Photodisc and will cease all efforts to market such
product, other than those necessary to sell any inventory remaining on the date
of such termination of rights. PhotoDisc further agrees that all obligations to
pay royalties to Index Stock in connection with such sales will survive
termination of such rights.
1.6 "MultiMedia" as used on an Order means PhotoDisc's rights to sublicense
and distribute Agreement Images to PhotoDisc's customers for use and
reproduction, singly or in combination, in any "electronic medium. "Electronic
medium" includes any non paper-based medium in which electronic data may be
stored in digital or analog form, including electromagnetic- based media such as
hard or floppy disks, optical media or on tape, slide film or video tape.
1.7 "Order" means the Title Development Order and Specification,
substantially in the form attached as Exhibit A, describing the terms and
specifications of each project involving Agreement Images.
1.8 "Print" as used on an order means rights to sell Agreement Images to
PhotoDisc's customers for use and reproduction, singly or in combination, for
output onto paper.
1.9 "Pay Per Use" as used on an order means PhotoDisc's rights to
sublicense and distribute Agreement Images to PhotoDisc's customers, singly or
in combination, who pay for each use of the Agreement Images. Pay Per Use rights
could be granted for distribution in MultiMedia or Print form.
1.10 "Thumbnail Rights" means PhotoDisc's rights to sublicense and
distribute Agreement Images to PhotoDisc's customers, singly or in combination,
in low resolution thumbnail form consisting of less than one megabyte per image.
Thumbnail Rights could be granted for distribution in MultiMedia or Print form.
2
<PAGE>
1.11 "Wholesale Net" means the invoice amount charged by PhotoDisc to each
of its unaffiliated customers for an Agreement Photodisc (exclusive of shipping,
taxes and insurance charges that are itemized on the invoice) in accordance with
its standard wholesale rates. Should PhotoDisc sell the product directly, then
the Wholesale Net will equal one-half (1/2) of the retail price. For purposes of
this provision, "retail price" will be defined as the invoice amount charged by
PhotoDisc to each of its direct customers for an Agreement Photodisc (exclusive
of shipping, handling, taxes and insurance charges that are itemized on the
invoice) in accordance with its standard retail rates.
2. Agreement and Relationship of Parties.
2.1 Agreement.
2.1.1 Subject to the terms and conditions of this Agreement:
(a) Index Stock hereby sublicenses to PhotoDisc rights to
produce, sublicense, and distribute to end-users the Agreement Images for and
limited to the purposes of this Agreement and agrees to provide certain
consulting services in connection therewith; and
(b) PhotoDisc hereby agrees to produce and distribute to
end-users the Agreement Images and Agreement Photodiscs and pay royalties to
Index Stock in consideration for such rights and services to PhotoDisc,
and to make commercially reasonable efforts to limit the uses made by
end-users of the Agreement Images to those specified in this Agreement and
applicable end-user licenses.
2.1.2 PhotoDisc may assign or sublicense its rights to a wholly-owned
subsidiary on a royalty-free non-transferable basis; provided, that such
sublicense may not be granted to reduce end-user licenses or otherwise evade
royalty obligations to Index Stock. No such assignment or sublease shall relieve
Photodisc of any of the obligations under this Agreement.
2.1.3 Any companies affiliated with PhotoDisc to which rights and
obligations are transferred under this Agreement will be deemed to be parties to
this Agreement and subject to the terms and conditions hereof.
3
<PAGE>
2.1.4 The form of end-user license applicable to each project agreed upon
hereunder will be attached to the Order for that project. Index Stock will
indicate on the Order whether it approves of such end-user license, which
approval will not be unreasonably withheld. Thereafter, PhotoDisc will notify
Index Stock of any material changes in the applicable end-user license form, but
Index Stock will have no further approval rights pursuant to this subparagraph
unless such revisions grant end-users more rights vis a vis PhotoDisc than did
the prior version.
2.2 When Sublicense is Effective. The sublicense granted by Index Stock
pursuant to this Section 2.1 will take effect automatically as to a given set of
Agreement Images with the delivery of photographs of those Agreement Images to
PhotoDisc pursuant to Section 4.2 for the production of an Agreement Photodisc.
2.3 Rights held by Index Stock under Photographer Agreements. A true and
correct copy form of Index Stock's standard agreement with its Photographers is
attached hereto as Exhibit B.
2.4 Nature of Relationship. PhotoDisc and Index Stock expressly acknowledge
and agree that their relationship is one of contract and customer-independent
contractor only and is not one of partnership, joint venture, principal-agent,
or any other legal identity.
2.5 Agreement Photodiscs Sold by Index Stock. Index Stock will have the
right to distribute and sell to its customers the number of Agreement Photodiscs
set forth on each Order. PhotoDisc will provide these products at prices and
terms similar to other PhotoDisc distributors purchasing in similar quantities,
under similar terms and conditions. PhotoDisc will furnish to Index Stock, for
promotional use only and not for resale, no more than the number of copies of
each Agreement Photodisc set forth on the applicable order for no charge.
Notwithstanding the above, PhotoDisc agrees that Index Stock is under no
obligation to purchase any Agreement Photodiscs. Furthermore, PhotoDisc agrees
that any Index Stock purchases of Agreement Photodiscs will be treated as sales
for purposes of this Agreement and a credit for them will be included in the
calculation of the quarterly royalty due to Index Stock.
3. Royalties.
3.1 Royalty Amounts and Exclusions. PhotoDisc will pay to Index Stock the
royalties set forth on the applicable Order.
4
<PAGE>
3.2 Royalty Reporting and Payment.
3.2.1 PhotoDisc will keep full, true and accurate books of account required
for the purpose of showing royalty amounts payable to Index Stock pursuant to
this Agreement.
3.2.2 Within 21 days following the end of each calendar quarter (the
"Payment Date"), PhotoDisc will (i) deliver records showing its Wholesale Net
revenues received in the preceding quarter, as well as the total number of
Agreement Photodiscs sold in such quarter and the price at which such units were
sold. PhotoDisc will also make the appropriate royalty payment therewith,
prorated in accordance with the number of Agreement Images on such Agreement
Photodiscs. Where full records are not available as of the Payment Date,
PhotoDisc will furnish to Index Stock a report with all information then
available and will pay to Index Stock a royalty amount equal to PhotoDisc's best
good faith estimate of the amount due. As soon as possible after the Payment
Date, but in no event later than fifteen (15) days thereafter, PhotoDisc will
(i) deliver to Index Stock a final report, which will include the amount of any
increase or decrease of the royalty due for such quarter and such other final
information as is set forth above, and (ii) pay the amount of any increase to
Index Stock or notify Index Stock of any amount to be refunded, which refund, if
any, will be paid by Index Stock no later than fifteen (15) days after the date
of such notification.
3.2.3 Index Stock and its accountant will be granted reasonable access to
all PhotoDisc records pertinent to the performance of PhotoDisc's obligations
pursuant to this Section 3, upon reasonable notice to PhotoDisc and in a manner
that does not unreasonably disrupt the business of PhotoDisc. Neither Index
Stock nor its accountant will make copies of or remove such records unless
specifically approved by PhotoDisc and in no event will such records include
customer lists. Upon the approval of PhotoDisc, not to be unreasonably withheld,
Index Stock or its accountant may make and remove summaries of such records,
provided that Index Stock acknowledges, and will cause its accountant to
acknowledge in writing, that such summaries are confidential information subject
to the provisions of Section 8. If an error of more than five percent is found
by any audit performed by Index Stock pursuant to the terms of this Section 3,
PhotoDisc will pay the reasonable costs of the audit.
3.3 Royalty Obligation Survives Termination. PhotoDisc's responsibility to
pay royalties as provided hereunder will survive any termination of this
Agreement.
5
<PAGE>
4. Production of Agreement Photodiscs.
4.1 Delivery of Photographs.
4.1.1 PhotoDisc will notify Index Stock that it wishes to develop an
Agreement Photodisc by furnishing to Index Stock a proposed order. Once the
terms of that Order are agreed upon, it will be signed, dated and attached to
Exhibit A. The date of such order will constitute the "Notice Date."
4.1.2 For all Agreement Photodiscs it agrees to develop, Index Stock will
provide within 60 days after the Notice Date all Agreement Images required for
the Agreement Photodisc (such 60-day period, the "Development Period"). Images
supplied by Index Stock will be photographs or duplicates of like quality to the
originals capable of being scanned by PhotoDisc pursuant to Section 4.3. The
photographs will contain basic keywording providing for the photographer's name,
location of photo, and any other agreed upon indexing information. Index Stock
agrees that PhotoDisc will have, free of charge, access to all information
reasonably necessary for the purposes of this Agreement, subject to the
provisions of Section 8, maintained by Index Stock with respect to Agreement
Images supplied to PhotoDisc hereunder; provided, that this provision does not
require Index Stock to generate any information additional to the basic
keywording information described in this subsection 4.1.2 and that Index Stock
is not required to provide any information about previous sales or users of the
Agreement Images.
4.1.3 Upon delivey of the photographs proposed for inclusion in an
Agreement Photodisc, PhotoDisc will be entitled to review the proposed Agreement
Images and reject up to 40% of such Agreement Images, describing generally how
they should be replaced. Index Stock will thereupon be required to use its
reasonable efforts to provide replacement Agreement Images within thirty (30)
business days. Index stock will have no further obligation to supply Agreement
Images for that Agreement Photodisc other than pursuant to Section 9.2.
4.2 Consulting Assistance. Index Stock will consult with PhotoDisc, subject
to PhotoDisc's editorial control, in determining PhotoDisc titles, layout, image
selection and other matters that are pertinent to the assembly and production of
Agreement Photodiscs. PhotoDisc agrees that it will not require Index Stock to
spend more than 5 hours per week on such consultation or more than a total of 80
hours during the course of producing an individual Agreement Photodisc. This
limitation will not apply to services performed by Index Stock pursuant to
Section 4.1.
6
<PAGE>
4.3 Duties of PhotoDisc.
4.3.1 PhotoDisc will scan slides furnished by Index Stock onto a computer
at an output size, with lines per inch, and for storage on such media as are set
forth on the applicable order. The Order will also contain any other pertinent
specifications. PhotoDisc will scan all Agreement Images for each disk,
cataloging the Agreement Images with key words, compressing the Agreement Images
for storage on magnetic and optical disks, creating an on-screen catalog for
storage and retrieval of Agreement Images and packaging the disks with relevant
information about photographers' copyrights, photographers' credits, Index
Stock's credits and any other agreed upon information. Following its use of the
Agreement Images supplied by Index Stock, PhotoDisc will return the Agreement
Images to Index Stock.
4.3.2 PhotoDisc agrees to be make commercially reasonable efforts to
protect the copyrights held by Index Stock and its associated photographers on
the Agreement Images from any infringement or claim thereof by any purchaser,
recipient, or user of an Agreement Photodisc; provided, that PhotoDisc will
cooperate with Index Stock if, at its own expense, Index Stock wishes to make
additional efforts to protect such copyrights. PhotoDisc's failure to make such
efforts will be considered a breach of this agreement. PhotoDisc agrees to
transfer to Index Stock any information and evidence it may hold or know of that
would help Index Stock pursue any potentially infringing party. PhotoDisc agrees
to make all reasonable efforts to preserve, protect, and return any photographic
materials Index Stock delivers to it, whether they are original images or
duplicates of original images. Furthermore, PhotoDisc agrees to make all
reasonable efforts to preserve the quality of the Agreement Images in any
products it creates using them.
4.4 Abandonment of Agreement Photodisc.
4.4.1 PhotoDisc will have rights to abandon the development of an Agreement
Photodisc at any time prior to its release to customers. For purposes of this
provision, an "abandonment" will be deemed to have occurred if the Agreement
Photodisc is not released within six months following the conclusion of the
applicable Development Period. Following its decision to abandon development of
an Agreement Photodisc, PhotoDisc will immediately return all copies of
originals of the Agreement Images that it may hold and destroy all electronic
copies of the Agreement Images.
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4.4.2 All rights to Agreement Images contained in any abandoned Agreement
Photodisc will revert to Index Stock.
5. Intellectual Property Rights. PhotoDisc will endeavor to acquire, and
Index Stock agrees not to assert, trademark rights to the name "PhotoDisc",
"Photodisc", and copyrights and Agreement Photodiscs (the "PhotoDisc
Intellectual Property Rights"). Index Stock will endeavor to acquire, and
PhotoDisc agrees not to assert, trademark rights to the name "Index Stock
Photography, Inc.", "Telephoto", "Black Box" Copyrights in the Agreement Images
and copyrights in Index Stock's marketing and related promotional materials to
be developed in connection with sales of Index Stock products. Nothing herein
contained shall give PhotoDisc any rights to the Agreement Images except
expressly licensed in this Agreement, and Photodisc acknowledges that copyrights
in the Agreement Images shall at all times belong to Index Stock and or the
respective photographers thereof.
6. Continuing Duties of the Parties.
6.1 Continuing Duties of Index Stock.
6.1.1 For the term of this Agreement, Index Stock agrees to:
(a) cooperate with PhotoDisc in PhotoDisc's efforts to perfect any
of the PhotoDisc Intellectual Property Rights and make commercially reasonable
efforts to enforce protection of any copyrights held by either Party to this
Agreement;
(b) assist PhotoDisc by notifying it of any possible infringements
of the PhotoDisc Intellectual Property Rights of which it becomes aware; and
(c) perform all of its obligations with photographers and any
other consultants and subcontractors it engages to assist it in performing
under this Agreement.
6.1.2 Index Stock grants to PhotoDisc the right to inspect, upon reasonable
notice and without disrupting the business of Index Stock, license agreements
with photographers supplying images to Index Stock in connection with Index
Stock's performance under this Agreement.
6.2 Continuing Duties of PhotoDisc. For the term of this Agreement,
PhotoDisc agrees to:
(a) make commercially reasonable efforts to promote sales of
Agreement Photodiscs through trade advertising,
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direct mail, trade shows, promotions and public relations and
to sell through retail dealers, direct mail/catalog marketers and retail
customers;
(b) notify Index Stock of any material changes in its form user
licenses and make commercially reasonable efforts to enforce the terms
of its user licenses;
(c) take no action, and make commercially reasonable efforts to
ensure that end-users of Agreement Photodiscs take no action, that
violates or is inconsistent with Index Stock's obligations to photographers
pursuant to the pertinent License Agreements;
(d) cooperate with Index Stock in Index Stock's efforts to perfect
any of the Index Stock Intellectual Property Rights and make commercially
reasonable efforts to enforce protection of any copyrights held by either
Party to this Agreement;
(e) assist Index Stock by notifying it of any possible infringements
of the Index Stock Intellectual Property Rights of which it becomes aware; and
(f) notify Index Stock of any violation of the terms of its
end-user license agreements within 30 days of the date PhotoDisc discovers
the violation.
7. Representations and Warranties.
7.1 Representations and Warranties of Index Stock. As an inducement to
PhotoDisc to enter into this Agreement, Index Stock hereby represents and
warrants to the best of its knowledge as follows:
(a) the Agreement Images provided by Index Stock pursuant to this
Agreement will represent the original work of its photographers and will not
infringe upon any copyright or any other intellectual property right
possessed by any other party;
(b) Index Stock possesses rights to sublicense to PhotoDisc the
Agreement Images as provided in this Agreement, and execution of this
Agreement is the only step required to vest in PhotoDisc the rights transferred
hereunder;
(c) no rights have been granted by Index Stock to any third
parties inconsistent with those rights granted to PhotoDisc hereunder;
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(d) no rights have been granted by Index Stock's photographers to any
third parties inconsistent with those rights granted to PhotoDisc hereunder;
(e) Index Stock is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the right
and power to carry on its business as now conducted and full power and
authority to enter into this Agreement; and
(f) this Agreement has been duly executed and delivered by it and
is its legal, valid and binding obligation, enforceable against it in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws affecting
the enforceability of creditors' rights generally.
7.2 Representations and Warranties of PhotoDisc. As an inducement to
Index Stock to enter into this Agreement, PhotoDisc hereby represents and
warrants to the best of its knowledge that PhotoDisc is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Washington and has the right and power to carry on its business
as now conducted with full power and authority to enter into this Agreement;
and this Agreement has been duly executed and delivered by it and is its
legal, valid, and binding obligation, enforceable against it in accordance with
its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the
enforceability of creditors' rights generally.
8. Confidentiality.
8.1 Covenant. Each Party agrees to hold, and will use its best efforts
to cause its affiliates, employees, and agents to hold, in confidence, all
documents and information furnished by the other Party in connection with this
Agreement (any such information being "Confidential Information"), except to the
extent that any Confidential Information can be shown to have been (i)
previously known on a non-confidential basis by the other Party, (ii) in the
public domain through no fault of the Party receiving the Confidential
Information or its affiliates, employees, or agents, (iii) lawfully acquired by
such receiving Party or its affiliates, employees, or agents from sources other
than the furnishing Party, (iv) disclosed pursuant to legal requirements, or (v)
disclosed pursuant to securities due diligence, if such disclosure is consented
to in writing by PhotoDisc, which consent will not be unreasonably withheld (but
which may be conditioned upon the signing of an appropriate Confidentiality
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Agreement). This covenant will require each Party to exercise at least that
level of care with respect to the Confidential Information provided by the other
Party that the Party exercises with internally generated information it treats
as confidential. This covenant will survive any termination of this Agreement.
8.2 Confidential Information Furnished by PhotoDisc. The Confidential
Information includes, this Agreement, the terms of Exhibit A and B and, without
limitation, the following:
(a) trade secrets and other intellectual property rights PhotoDisc
develops in connection with the scanning, printing, marketing, and
distribution of the Agreement Photodiscs;
(b) information disclosed to Index Stock under the royalty
reporting provisions of this Agreement;
(d) existing or future products of other publishers and suppliers of
which PhotoDisc acquires knowledge; and
(e) the terms of this Agreement.
9. Cross-Indemnification.
9.1 Indemnification Covenant. Index Stock and PhotoDisc agree to promptly
defend and indemnify each other against and to hold each other harmless from,
against and in respect of and pay or reimburse each other for, any and all
claims, demands, liabilities, losses, damages, costs and expenses, including
reasonable attorneys' fees, arising from, relating to or in connection with a
breach by the other Party of any representation, warranty or covenant made by
such other Party in this Agreement. The indemnifying party shall have control
over any claim arising hereunder, including the right to designate council and
to have the control over the defense and settlement claim.
9.2 Duty of Index Stock to Further Replace Agreement Images. If an
Agreement Image is found to infringe the rights of another such that its use is
legally enjoined, Index Stock will immediately procure for PhotoDisc the right
to continue using, marketing and distributing the Agreement Images as allowed
under this Agreement or replace the Agreement Image with an image of
substantially similar quality and subject matter. If it is necessary to repress
the applicable Agreement Photodisc as a result of measures taken to eliminate
infringements, Index Stock and PhotoDisc will share evenly the fixed costs of
such work.
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10. Term And Termination.
10.1 Term. Subject to earlier termination for default as provided below,
this Agreement will have a 2 Year term which will be extended for three
successive one-year terms unless one Party timely notifies the other of its wish
to terminate the Agreement. Such notice will be effective to terminate this
Agreement as of the end of the second, third, or fourth years hereof,
respectively, if the notice is delivered to the other Party at least 90 days
before each of these dates.
10.2 Termination for Default.
10.2.1 This Agreement may be terminated by a Party upon a bankruptcy of
the other Party or an uncured breach of a material term of this Agreement by the
other Party. Subject to subsection 10.2.2, termination upon a breach of a
material term will be effective where such breach remains uncured for a period
of 60 days following written notice thereof by the non-breaching Party, provided
that such non-breaching Party provides written notice of such termination. For
purposes of this provision, a "bankruptcy" will be defined as (i) the
commencement of either Party of a voluntary case under Title 11 of the United
States Code as from time to time in effect, or by the authorization of either of
them of the commencement of such a voluntary case; (ii) the filing against
either of them of a petition commencing an involuntary case under said Title 11
and such petition is not dismissed or stayed pending appeal within 60 days;
(iii) the seeking by either of them of relief as a debtor under any applicable
law, other than said Title 11; or (iv) either Party becoming generally unable to
meet its debts as they become due for a period of at least one fiscal quarter.
10.2.2 Notwithstanding the above, the sixty (60 day cure period set forth
in subsection 10.2.1 above will apply to only one event of (i) late payment of
royalty payments by PhotoDisc hereunder, and (ii) late delivery of Agreement
Images by Index Stock hereunder; and subsequent late payments of royalties or
late delivery of Agreement Images will be subject to a ten (10) day cure period.
10.2.3 If this Agreement is terminated for any of the reasons mentioned
in subsection 10.2.1 or for any other reason, PhotoDisc agrees to immediately
cease production of additional Agreement Photodiscs and to cease all efforts to
market Agreement Photodiscs other than those necessary to sell any inventory
remaining on the date of termination. PhotoDisc
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further agrees that all obligations to pay royalties to Index Stock on such
sales will survive termination of this contract.
11. Miscellaneous.
11.1 Binding Effect and Assignment. This Agreement will be binding upon
and inure to the benefit of the Parties and their respective successors and
assigns. The previous sentence notwithstanding, however, except as expressly
provided in this Agreement, neither Party will assign its rights and
obligations, nor delegate its duties, hereunder without the prior written
consent of the other Party; provided, that if either party unreasonably
refuses to consent to the transfer of this Agreement by the other, then this
Agreement will remain in effect for six months following the date of such
refusal. For purposes of this provision, a material change in control of
either Party will be considered an attempt to assign the rights conveyed by
this Agreement. A "material change in control" will be deemed to have
taken place with any statutory merger, consolidation or share exchange in
which an unaffiliated party is the survivor or owner of at least 51% of the
stock of any resulting entity. If no such statutory transaction takes
place, a material change of control will be deemed to occur if, as of the end of
any calendar year, at least 51% of the Party's outstanding common stock is
owned by parties that did not own such stock as of the beginning of such year
except in the event of a public offering of shares by the party. However, the
previous two sentences notwithstanding, a transfer of rights by a Party to
another party who assumes performance of all of the terms and obligations
of this agreement and that is affiliated to it and is under common control
will not be considered an assignment, provided both the original and affiliated
party are subject to all terms of this Agreement and the transferring
party remains bound by and subject to all of the terms and obligations
of this Agreement.
11.2 Expenses. The Parties will bear all of their own expenses in
connection with the negotiation, preparation and execution of this Agreement.
11.3 Entire Agreement. This Agreement, including all Exhibits attached
hereto, constitutes the entire Agreement among the Parties and may not be
modified, supplemented or contradicted by evidence of any prior agreement, any
contemporaneous oral agreement or any consistent additional terms. There are no
representations, warranties, collateral agreements or conditions affecting this
transaction other than as are expressed or referred to herein in writing.
11.4 Amendments; Waivers. This Agreement may not be amended, modified or
terminated except by an instrument inwriting signed by an authorized
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representative of each Party. The course of dealing between the Parties will not
be deemed to affect, modify, amend, or discharge any provision or term of this
Agreement. A delay on the part of either Party in the exercise of its or his
rights or remedies will not operate as a waiver of such rights or remedies, and
a single or partial exercise by a Party of any such right or remedy will not
preclude other or further exercises of that right or remedy. A waiver of a right
or remedy on any one occasion will not be construed as a bar to or waiver of any
such right or remedy on any other occasion. The course of dealing between the
Parties will not be deemed to affect, modify, amend, or discharge any provision
or term of this Agreement.
11.5 Enforceability. If any provision of this Agreement is held or
deemed to be invalid or unenforceable to any extent when applied to any person
or circumstance, the remaining provisions and the enforcement of such provisions
on other persons or circumstances will not be affected thereby, and each
provision hereof will be enforced to the fullest extent allowed.
11.6 Notices. All notices, requests, demands, and other communications
given under this Agreement will be in writing and will be deemed to have been
duly given at the time of delivery if personally delivered or delivered via
facsimile and, if addressed correctly, one day after deposit for delivery if
delivered via recognized overnight courier and 72 hours after such deposit if
mailed first class, postage prepaid. "Addressed correctly" will mean addressed
to the Parties at the addresses set forth below, or at such other address as a
Party hereto may designate at any time in writing by notice to the other
pursuant to this Section:
If to Index Stock: Bahar Gidwani
Chief Executive Officer
126 Fifth Ave. 7th Floor
New York, NY 10011
With a copy to: Schneck, Weltman Hashmall & Mischel
1285 Avenue of the Americas
Neow York, NY 10019
Attn.: Arthur Schneck, Esq.
If to PhotoDisc: Tom Hughes
President
2013 Fourth Avenue
Seattle, WA 98121
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With a copy to: Graham & Dunn
33rd Floor, 1420 Fifth Avenue
Seattle, WA 98101-2390
Attn.: Keith C. Cochran, Esq.
11.7 Governing Law and Construction. This Agreement will be construed
and enforced in accordance with the laws of the State of Washington. Its
language is and will be deemed to be the language chosen by the Parties jointly
to express their mutual intent. No rule of construction based on which Party
drafted the Agreement or certain of its provisions will be applied against any
Party.
11.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
11.9 Attorneys Fees. In the event it is necessary for any Party to
retain an attorney to enforce any of the provisions hereof, then the
substantially successful Party will be entitled to reasonable attorneys' fees
from the substantially unsuccessful Party, including fees incurred in both trial
or appellate courts, and all court and accounting costs.
IN WITNESS WHEREOF the Parties have caused this Agreement to be executed as
of the date first above written.
"PhotoDisc" PHOTODISC, INC.
By:/s/
-------------------------------------
Mark Torrance, Chairman
"Index Stock" INDEX STOCK, INC.
By:/s/
-------------------------------------
Its:-----------------------------
CEO
-----------------------------
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EXHIBIT A TO PHOTODISC, INC. & INDEX STOCK PHOTOGRAPHY INC.
MASTER LICENSING/DISTRIBUTION AGREEMENT
Title Development Order & Specification(s)
[Each Order to be initialed and dated by each Party and attached behind
this page once agreed upon.]
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REGISTRATION RIGHTS AGREEMENT
INDEX STOCK PHOTOGRAPHY, INC.
REGISTRATION RIGHTS AGREEMENT made this day of _____________,
1993 by and among Index Stock Photography, Inc., a Delaware corporation, having
an office at 126 Fifth Avenue, New York, N.Y. 10061 ("Index") , an individual
residing at , ("____________") and , an individual residing at (" "), and , an
individual residing at collectively, , and are hereinafter referred to as the
"Investors".
W I T N E S S E T H :
WHEREAS, in connection with the offering by the Company dated
June 4, 1993, of up to 375,000 shares of its duly authorized and unissued common
stock par value $.0001 per share, the Company and Investor propose to enter into
a subscription agreement providing for the purchase and sale of 375,000 shares
of the Company's common stock ("Investors'Common Stock");
WHEREAS, in order to induce Investors to enter into the
subscription agreement the Company has agreed to register such shares for resale
by the Investors, subject to and upon the terms and conditions set forth in this
Agreement;
NOW THEREFORE, in consideration of the foregoing, and the
covenants, warranties and mutual agreements hereinafter set forth, the parties
hereto agree as follows:
SECTION 1. Definitions.
As used herein, the terms defined in the Preamble and Recitals
to this Agreement have the respective meanings set forth therein and the
following additional terms have the following respective meanings:
"Additional Restricted Securities" shall mean any authorized but
unissued shares of common stock of the Company or any outstanding securities of
the Company (other than the Investors' Common Stock) which may be issued to any
Person and which may be included in any registration effected by the Company
under the Securities Act.
"Agreement" shall mean this Agreement, as from time to time
amended, supplements or otherwise modified.
<PAGE>
"Commission" shall mean the Securities and Exchange
Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute. and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Initial Public Offering" shall mean the first time the
Company's equity securities are sold pursuant to an effective registration
statement filed with the Commission on Form S-1 (or any other form which
includes substantially the same information as would be required to be included
in a registration statement of such form as presently constituted).
"Person" shall mean an individual, association, partnership,
corporation, trust or unincorporated organization or any other entity or
organization.
"Registration Expenses" shall mean all expenses incidental to
the Company's performance of this Agreement and shall be limited to the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits required by or
incident to such performance. Said term shall exclude all other fees, costs and
expenses which may be incurred in effecting the registration of the Investors'
Common Stock, including, any state or federal transfer taxes payable with
respect to the sales of the Investors' Common Stock, the fees and disbursements
of counsel to the Investors, all registration and filing fees, all fees and
expenses of complying with securities of blue sky laws and all printing
expenses, but shall not include underwriting discounts and selling commissions
applicable to the sale of the Investors' Common Stock.
"Restricted Securities" shall mean (i) any of the Investors'
Common Stock which are evidenced by a certificate or certificates bearing the
legend set forth in Section 2, (ii) any shares of Common Stock issued to a
Person which are evidenced by a certificate or certificates bearing the legend
set forth in Section 2 or (iii) any shares of Common Stock issued to a Person
which are evidenced by a certificate or certificates bearing the following
legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAWS AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM"; provided, however, that Restricted Securities shall not
include any such shares disposed of pursuant to one or more registration
statements under the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act.
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"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor or similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
SECTION 2. Restrictions of Transfer.
2.1 Restrictive Legends. Except as otherwise permitted
by this Agreement, each certificate relating to the Investors'
Common Stock shall be stamped or otherwise imprinted with a
legend in substantially the following terms:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM."
2.2 Restrictive Stock Transfers. The Company agrees to furnish
to the Investors any information which it furnishes to stockholders generally
and otherwise cooperate with each of the Investors in order to effectuate a
transfer by each of the Investors of the Investors' Common Stock without
registration under the Securities Act.
SECTION 3. Registration of the Investors' Common Stock.
3.1 Incidental Registration.
3.1.1 If at any time during the five year period commencing
180 days following completion of an Initial Public Offering by the Company, the
Company proposes to register any of its equity securities under the Securities
Act on Forms S-1, S-2 or S-3 or any other form which includes substantially the
same information as would be required to be included on such forms as presently
constituted or any other registration form at the time in effect on which the
Investors' Common Stock could be registered for sale by the Investors (other
than a registration in connection with an acquisition of or merger with another
entity or the sale of shares to employees of the Company pursuant to employee
stock options or other employee stock purchase plans), the Company shall on each
such occasion give written notice to the Investors. Upon the written request of
the Investors owning not less than 50% of the shares of common stock sold in
connection with the Company's offering dated May 28, 1993, given within 10 days
after receipt of any such notice, the Company shall include the Investors' Stock
in such registration statement, file the registration statement and use its best
efforts to effect the registration under the Securities Act of all of the
Investors' Common Stock which the Company has been so requested to register by
the Investors. The Company shall not be obligated to file more than one (1) such
registration statement under this Section 3.1.
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3.1.2 If, in the written opinion of the
underwriters managing such public offering, the inclusion of the Investors'
Stock would have an adverse effect on the offering being registered, the Company
may require the reduction on a pro rate basis or the exclusion in such
registration of the Investors' Common Stock.
3.1.3 If the Investors request that the Investors'
Common Stock be included in a registration pursuant to this Section 3.1, the
Investors shall be responsible for their pro rata share of the fees, costs and
expenses incurred in so registering their shares, including, without limitation,
underwriting discounts and selling commissions applicable to the sales of the
Investors' Common Stock, any state or federal transfer taxes payable with
respect to the sales of the Investors' Common Stock, however all other expenses
including registration and filing fees, fees and expenses of complying with
securities or blue sky laws and printing expenses shall be borne by the Company.
3.2 Registration Procedures.
3.2.1 If and whenever the Company is required
pursuant to the provisions of this Section 3 to effect the registration of any
of the Investors' Common Stock under the Securities Act, the Company shall use
its best efforts to, within 60 days:
3.2.1.1 prepare and file with the Commission
a registration statement with respect to the Investors' Common Stock and use its
best efforts to cause such registration statement to become and remain effective
for the period specified in clause 3.2.1.2 below;
3.2.1.2 prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration effective,
and to comply with the provisions of the Securities Act with respect to the
disposition of all of the Investors' Common Stock covered by such registration
statement until such time as all of the Investors' Common Stock have been
disposed of; in accordance with the intended methods of disposition of the
Investors thereof set forth in such registration statement, but in no event for
a period of more than six months after such registration statement becomes
effective;
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3.2.1.3 furnish to each of the Investors such
number of conformed copies of such registration statement and of each amendment
and supplement thereto (in each case including all exhibits), such number of
copies of such prospectus (and each preliminary prospectus and any summary
prospectus) in conformity with the requirements of the Securities Act as the
Investors may reasonably request, and such other documents as the Investors may
reasonably request and such other documents as the Investors may reasonably
request;
3.2.1.4 use best efforts to register or
qualify the Investors' Common Stock covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as each of the
Investors shall reasonably request and do any and all other acts and things
which may be necessary or desirable to enable the Investors to consummate the
public sale or other disposition of the Investors' Common Stock in such
jurisdictions;
3.2.1.5 list the Investors' Common Stock on
any securities exchange on which any of the Company's securities is listed, if
the Investors' Common Stock are not already so listed and if such listing is
then permitted under the rules of such exchange.
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SECTION 4. Indemnification.
4.1 Indemnification by the Company. In the event of any
registration of any of the Investors' Common Stock under the Securities Act
pursuant to Section 3.1 hereof, the Company will, and hereby does, indemnify and
hold harmless each of the Investors, its directors and officers (if a
corporation) and its partners (if applicable) each other Person who participates
as an underwriter, broker or dealer in the offering or sale of the Investors'
Common Stock and each other Person, if any, who controls any of the Investors or
such underwriter or who is deemed to be a participating Person within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which such of the Investors, or any
such director, officer or partner or participating or controlling Person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based on any untrue statement or alleged untrue statement of
any material fact contained in any registration statement under which the
Investors' Common Stock were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse the Investors and each such director, officer or partner or
participating or controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with information furnished to the Company by any of the Investors or their
respective counsel for use in the preparation thereof, and provided, further,
that if any losses, claims, damages or liability arise out of or are based upon
an untrue statement, alleged untrue statement, omission or alleged omission
contained in any preliminary prospectus which did not appear in the final
prospectus, the Company shall not have any liability with respect thereto to (i)
the Investors, any officer, director or partner thereof, or any Person who
controls, any of the, Investors within the meaning of the Securities Act or the
Exchange Act, if the Investors delivered a copy of the preliminary prospectus,
summary prospectus or any amendment or supplement thereto to the Person alleging
such losses, claims, damages or liabilities and failed to deliver a copy of the
final prospectus to such Person at or prior to the written confirmation for the
sale to such Person or (ii) any underwriter or any Person who controls such
underwriter within the meaning of the Securities Act or the Exchange Act, if
such Underwriter delivered a copy of the preliminary prospectus, summary
prospectus or any amendment or supplement thereto to the Person at or prior to
the written confirmation of the sale of such Person. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
the Investors, or any such director, officer or partner or participating or
controlling Person and shall survive the transfer of the Investors' Common Stock
by the Investors.
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4.2 Indemnification by the Investors. In the event of any
registration of the Investors' Common Stock under the Securities Act pursuant to
Section 3.1 hereof, each of the Investors, jointly and severally, will and
hereby does indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 4.1) the Company and any director, officer or
agent of the Company who shall sign such registration statement, each Person who
participates as an underwriter, broker or dealer in the offering or sale of the
Investors' Common Stock and each other Person, if any, who controls the Company
or such underwriter within the meaning of the Securities Act or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
such of the Company, or any such director, officer or partner or participating
or controlling Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon any untrue
statement of any material fact contained in any such registration statement, any
preliminary prospectus, summary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Investors will
reimburse the Company, any director, officer or agent of the Company and each
other Person who controls the Company if such statement or omission was made in
reliance upon and in conformity with information furnished to the Company by any
of the Investors or their respective counsel for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement, provided, however, that if any losses,
claims, damages or liabilities arise out of or are based upon an untrue
statement or omission contained in any preliminary prospectus which did not
appear in the final prospectus, each Investor shall not have any such liability
with respect thereto to (i) the Company, any Person who controls the Company
within the meaning of the Securities Act or the Exchange Act, any officer of the
Company who signed the registration statement or any director of the Company, if
the Company delivered a copy of the preliminary prospectus to the Person
alleging such losses, claims, damages or liabilities and failed to deliver a
copy of the final prospectus to such Person at or prior to the written
confirmation of the sale to such Person or (ii) any underwriter or any Person
who controls such underwriter within the meaning of the Securities Act or the
Exchange Act, if such underwriter delivered a copy of the preliminary prospectus
to the Person alleging such losses, claims, damages or liabilities and failed to
delivery a copy of the final prospectus to such Person at or prior to the
written confirmation of the sale to such Person. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Company or any such director, officer or participating or controlling Person
and shall survive the transfer of the Investors' Common Stock by the Investors.
- 7 -
<PAGE>
4.3 Notice of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding Sections 4.1 or 4.2 such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party, notify each indemnifying party of the commencement of such
action, suit or proceeding, enclosing a copy of all papers served, but the
omission so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability which it may have to any
indemnified party otherwise than under Section 4.1 or 4.2. In case any such
action, suit or proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in, and to the extent that
it shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ its own counsel which shall be at the expense of
such indemnified party, when and as occurred, unless (i) the employment of
counsel by such indemnified party has been authorized by the indemnifying
parties, (ii) the indemnified party shall have reasonably concluded that there
may be a conflict of interest between the indemnifying party in the conduct of
the defense of such action (in which case the indemnifying parties shall not
have the right to direct the defense of such action on behalf of the indemnified
party) or (iii) the indemnifying parties shall not in fact have employed counsel
to assume the defense of such action. An indemnifying party shall not be liable
for any settlement of any action or claim effected without its consent.
SECTION 5. Cooperation by the Investors. Each Investor, and each
underwriter designated by the Investors, will furnish to the Company such
Information as the Company may reasonably require from such of the Investors or
underwriter in connection with the registration statement (and the prospectus
included therein).
SECTION 6. Successors. All the covenants and provisions of
this Agreement shall be binding upon and inure to the benefit of
the Company, the Investors and their respective successors and
assigns hereunder.
SECTION 7. Termination. Notwithstanding anything to the
contrary contained herein, the indemnification provisions of
Section 4 shall survive such termination of this Agreement.
- 8 -
<PAGE>
SECTION 8. Governing Law, Submission to Jurisdiction. This Agreement
and each of the Investors' Common Stock issued hereunder shall be deemed to be a
contract made under the laws of the State of New York and for all purpose 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.
SECTION 9. 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.
SECTION 10. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give any person or corporation other than the Company and the
Investors 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 Investors.
SECTION 11. Notices. All notices, requests, demands and other
communications hereunder must be given in writing and shall be deemed to have
been duly given or delivered if by hand or by mail, first class, registered
mail, return receipt requested, to the addresses as set forth on the first page
hereof or at such other addresses as the parties shall have notified the other
parties.
SECTION 12. General Provisions.
12.1 Amendments. No modification of, or amendment to, this
Agreement shall be effective unless evidences by a written amendment signed by
duly authorized representatives of the parties to this Agreement.
12.2 Severability. In the event individual provisions of this
Agreement should in their entirety, or partially, be deemed invalid, then the
validity of the remaining provisions of the Agreement shall not be affected
thereby.
12.3 Waiver. No failure or delay by any of the parties to this
Agreement in exercising any right under this Agreement shall constitute a waiver
of such right.
12.4 Whole Agreement. This Agreement represents the parties'
final intentions with respect to the Investors' Common Stock and this Agreement
incorporates all prior and contemporaneous understandings, whether written or
oral, into the terms of this Agreement. This Agreement may only be modified
according to Section 12.1.
12.5 Relationship of the Parties. Nothing contained in or
relating to this Agreement shall constitute, or be deemed to constitute, a
partnership between the Parties hereto.
- 9 -
<PAGE>
12.6 Remedies Cumulative. The remedies available to parties
hereunder are cumulative and the exercise of one right or remedy by parties will
not preclude parties from exercising other or additional rights or remedies
available to it under this Agreement or at law or in equity.
12.7 Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of New
York.
12.8 Execution in Counterpart. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement
this day of , 1993.
INDEX STOCK PHOTOGRAPHY, INC.
By:
--------------------------------
Bahar Gidwani,
Chief Executive Officer
- 10 -
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 20, 1995 (except Note 1 and 5, as to which the
date is May 31, 1996) in the registration statement (Form S-1 No. 33-00000) and
related Prospectus of Index Stock Photography, Inc. for the registration of
1,000,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
-------------------------
ERNST & YOUNG LLP
New York, NY
July 3, 1996
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